Commission File Number
001-16191
TENNANT COMPANY
(Exact name of registrant as specified in its charter)
Minnesota | 41-0572550 | |
State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization | Identification No.) |
10400 Clean Street
Eden Prairie, Minnesota 55344
(Address of principal executive offices)
(Zip Code)
763-540-1200
(Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
Common Stock, par value $0.375 per share | TNC | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None | |||||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. | ☑ | Yes | No | ||||||
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. | Yes | ☑ | No | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | ☑ | Yes | No | ||||||
Indicate by check mark whether the registrant has submitted electronically | ☑ | ||||||||
Yes | No | ||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, | ||||||
Large accelerated filer | ☑ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||
| Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. | ☑ | ||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | ☐ | Yes | ☑ | No | |
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2020, was $1,107,917,527.
As of January 29, 2021, there were 18,516,296 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its 20182021 annual meeting of shareholders (the “2018“2021 Proxy Statement”) are incorporated by reference in Part III.
Form 10–K
Table of Contents
2020
ANNUAL REPORT
Form 10–K
(Pursuant to Securities Exchange Act of 1934)
PART I
ITEM 1 – Business General Development of Business Founded in 1870 by George H. Tennant, Tennant Company ("the Company, we, us, or our"), a Minnesota corporation incorporated in 1909, began as a one-man woodworking business, evolved into a successful wood flooring and wood products company, and eventually into a manufacturer of floor cleaning equipment. Throughout its history, the Company has remained focused on advancing our industry by aggressively pursuing new technologies and creating a culture that celebrates innovation. Today, the Company is a recognized leader of the cleaning industry. We are passionate about developing innovative and sustainable solutions that help our customers clean spaces more effectively, addressing various cleaning challenges. The Company operates in three geographic business units including the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC). The Company is committed to empowering our customers to create a cleaner, safer and healthier world with high-performance solutions that minimize waste, reduce costs, improve safety and further sustainability goals. Principal Products, Markets and Distribution The Company offers products and solutions consisting of mechanized cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and business solutions such as financing, rental and leasing programs, and machine-to-machine asset management solutions. The Company's products are used in many types of environments including: retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and more. The Company markets its offerings under the following brands: Tennant®, Nobles®, Alfa Uma Empresa Tennant™, IRIS®, VLX™, IPC brands, Gaomei and Rongen brands as well as private-label brands. The Company's customers include contract cleaners to whom organizations outsource facilities maintenance, as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide. | Raw Materials The Company has not experienced any significant or unusual problems in the availability of raw materials or other product components, other than those mentioned in Item 1A - Risk Factors. The Company has sole-source vendors for certain components. A disruption in supply from such vendors may disrupt the Company’s operations. However, the Company believes that it can find alternate sources in the event there is a disruption in supply from such vendors. Intellectual Property Although the Company considers that its patents, proprietary technologies and trade secrets, customer relationships, licenses, trademarks, trade names and brand names in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent upon any single item or category of intellectual property. We take appropriate measures to protect our intellectual property to the extent such intellectual property can be protected. Seasonality Although the Company’s business is not seasonal in the traditional sense, the percentage of revenues in each quarter typically ranges from 22% to 28% of the total year. The first quarter tends to be at the low end of the range reflecting customers’ initial slow ramp up of capital purchases and the Company’s efforts to close out orders at the end of each year. The second and fourth quarters tend to be toward the high end of the range and the third quarter is typically in the middle of the range. Major Customers The Company sells its products to a wide variety of customers, none of which are of material importance in relation to the business as a whole. The customer base includes several governmental entities which generally have terms similar to other customers. |
Competition Public industry data concerning global market share is limited; however, through an assessment of validated third-party sources and sponsored third-party market studies, the Company is confident in its position as a world-leading manufacturer of floor maintenance and cleaning equipment. Several global competitors compete with the Company in virtually every geography of the world. However, small regional competitors are also significant competitors who vary by country, vertical market, product category or channel. The Company competes primarily on the basis of offering a broad line of high-quality, innovative products supported by an extensive sales and service network in major markets. Human Capital Tennant Company has a commitment to our employees to foster a culture of integrity and stewardship. This guides our actions as we manage our business and holds us accountable to our colleagues to care for one another and work together for our mutual safety. To that end, our executive leadership, as well as our Board of Directors, emphasize the importance of positive human capital management. The following are key human capital measures and objectives that the Company currently focuses on: Employee Safety - We prioritize the health and safety of all of our employees. In our manufacturing facilities, we have established safety teams that proactively identify areas of improvement and help to reinforce employee behaviors in order to reduce or eliminate incidents. In our manufacturing facilities, behavioral safety culture is a primary focus, with a specific growing emphasis on “near-miss” reporting and resolution. We define a near-miss event as a situation where no property was damaged, and no personal injury was sustained, but given a slight shift in time or position, damage and/or injury could have occurred. This focus has increased awareness to potential incidents at our facilities. The result is a continuing positive trend in safety issues in our facilities. Additionally, we have an experienced team of Enterprise Health and Safety professionals that provide onsite and corporate level support to our global teams. Diversity, Equity, and Inclusion - Tennant is proud to be an equal opportunity employer where we foster and maintain an ethical work environment free of discrimination. Employment decisions are made on the basis of individual skill, ability, reliability, productivity, and other factors important to performance. We do not discriminate on the basis of race, color, creed, religion, sex, national origin, physical or mental disability, age, veteran status, pregnancy, sexual orientation, genetic information, gender identity, or any other basis protected by state or federal law or local ordinance. | Diversity in Governance - As of December 31, 2020, women represented 29% of our executive management team and 33% of our Board of Directors. Gender Equitable Pay - In 2020, Tennant Company performed a gender wage gap analysis to evaluate any gender differences in pay. The median income for women working full time in the United States was reported to be 99.36% as compared to their male counterparts. In other words, women at Tennant were seen to be making 99.36 cents to every $1 men earned. To put this figure in context, Tennant’s wage gap findings were compared to the national average. According to the national statistics published by Bureau of Labor Statistics (BLS) in 2019, women on average made 81.6% of the earnings made by males. The adjusted pay gap at Tennant was found to be 99.89% after controlling for variables such as title, grade, and work location, that are legitimate and non-discretionary reasons for pay difference. Also, this leftover gap of 0.11% was statistically not significant, suggesting that there is no evidence of pay gap at Tennant Company. Available Information The Company's internet address is www.tennantco.com. The Company makes available free of charge, through the Investor Relations website at investors.tennantco.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable when such material is filed electronically with, or furnished to, the Securities and Exchange Commission (“SEC”). The SEC also maintains an internet site that contains reports, proxy and information statements, and other information, which can be accessed at sec.gov. Information About Our Executive Officers The list below identifies those persons designated as executive officers of the Company, including their age, positions held with the Company and their business experience during the past five or more years. Daniel E. Glusick, Senior Vice President, Global Operations Daniel E. Glusick (48) joined the Company in November 2020 as Senior Vice President of Global Operations. Prior to joining Tennant, he was Senior Vice President of Operations at The Vollrath Company, a manufacturer of foodservice equipment and supplies, from June 2018 to October 2020. Prior to his time at The Vollrath Company, he held different roles with increasing responsibilities at Rexnord Industries, a machinery manufacturer, from 2008 to June 2018, leaving when he was VP of Engineering, Innovation and Rexnord Business System. Prior to Rexnord, Mr. Glusick also served for three years as Director, Global Manufacturing at Intermatic and for nine years he held various operations and supply chain leadership roles at Harley-Davidson. |
| Female | Male | Total |
| |||
| Americas | 438 | 1,786 | 2,224 | |||
| Europe, Middle East, Africa | 397 | 1,211 | 1,608 | |||
| Asia Pacific | 150 | 277 | 427 | |||
| Total | 985 | 3,274 | 4,259 |
David W. Huml, Senior Vice President and Chief Operating Officer David W. Huml (52) joined the Company in November 2014 as Senior Vice President, Global Marketing. In January 2016, he also assumed oversight for the Company's APAC business unit. In January 2017, he assumed oversight for the Company's EMEA business and in June 2018 he assumed responsibility for Global Operations. In April 2020, he was named Chief Operating Officer. From 2006 to October 2014, he held various positions with Pentair plc, a global manufacturer of water and fluid solutions, valves and controls, equipment protection and thermal management products, most recently as Vice President, Applied Water Platform. From 1992 to 2006, he held various positions with Graco Inc., a designer, manufacturer and marketer of systems and equipment to move, measure, control, dispense and spray fluid and coating materials, including Worldwide Director of Marketing, Contractor Equipment Division. Beginning on March 1, 2021, Mr. Huml will be Tennant Company's Chief Executive Officer and will join the Company's Board of Directors. H. Chris Killingstad, President and Chief Executive Officer H. Chris Killingstad (65) joined the Company in April 2002 as Vice President, North America and was named President and CEO in 2005. From 1990 to 2002, he was employed by The Pillsbury Company, a consumer foods manufacturer. From 1999 to 2002 he served as Senior Vice President and General Manager of Frozen Products for Pillsbury North America; from 1996 to 1999 he served as Regional Vice President and Managing Director of Pillsbury Europe, and from 1990 to 1996 was Regional Vice President of Häagen-Dazs Asia Pacific. He held the position of International Business Development Manager at PepsiCo Inc., from 1982 to 1990 and Financial Manager for General Electric, from 1978 to 1980. Mr. Killingstad is retiring as the Company's Chief Executive Officer on March 1, 2021 and will serve as a strategic advisor until the end of 2021. Carol E. McKnight, Senior Vice President, Chief Administrative Officer Carol E. McKnight (53) joined the Company in June 2014 as Senior Vice President of Global Human Resources. In 2017, she was named Senior Vice President and Chief Administrative Officer. Prior to joining the Company, she was Vice President of Human Resources at Alliant Techsystems (ATK) where she held divisional and corporate leadership positions in the areas of compensation, talent management, talent acquisition and general human resource management from 2002 to 2014. Prior to ATK, she was with New Jersey-based NRG Energy, Inc. Thomas Paulson, Interim Chief Financial Officer and Interim Principal Accounting Officer Thomas Paulson (64) was most recently Tennant's Senior Vice President and Chief Financial Officer from 2006 until he retired in 2019. Prior to joining Tennant, he was Chief Financial Officer and Senior Vice President of Innovex from 2001 to February 2006. Prior to joining Innovex, he worked for The Pillsbury Company for over 19 years. He became a Vice President at Pillsbury in 1995 and was the Vice President of Finance for the North American Foods Division for over two years before joining Innovex. Kristin A. Stokes, Senior Vice President, General Counsel and Corporate Secretary Kristin A. Stokes (48) joined the Company in April 2008 as Associate General Counsel and was named Senior Vice President, General Counsel and Corporate Secretary in December 2020. In July 2020, she was named Interim General Counsel and Corporate Secretary after having previously served as Vice President, Deputy General Counsel and Chief Compliance Officer, and Deputy General Counsel. Prior to joining Tennant in 2008, she served as Senior Counsel and Assistant Secretary for MoneyGram International, Inc., from 2004 to 2008. She started her career as a corporate attorney for Lindquist & Vennum, PLLP (n/k/a Ballard Spahr LLP). | Richard H. Zay, Senior Vice President, Technology and Innovation Richard H. Zay (50) joined the Company in June 2010 as Vice President, Global Marketing and was named Senior Vice President, Global Marketing in October 2013. In 2014, he was named Senior Vice President of the Americas business unit for the Company and in 2018 he also assumed responsibility for Tennant Research and Development. From 2006 to 2010, Mr. Zay held various positions with Whirlpool Corporation, a manufacturer of major home appliances, most recently as General Manager, KitchenAid Brand. From 1993 to 2006, Mr. Zay held various positions with Maytag Corporation, including Vice President, Jenn-Air Brand, Director of Marketing, Maytag Brand, and Director of Cooking Category Management. The following are material factors known to us that could materially adversely affect our business, financial condition or operating results. Macroeconomic Risks We may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn, decreasing the demand for our products and negatively affecting our sales growth. Our product sales are sensitive to declines in capital spending by our customers. Decreased demand for our products could result in decreased revenues, profitability and cash flows and may impair our ability to maintain our operations and fund our obligations to others. In the event of a continued long-term economic downturn in the U.S. or other global economies, our revenues could decline to the point that we may have to take cost-saving measures, such as restructuring actions. In addition, other fixed costs would have to be reduced to a level that is in line with a lower level of sales. A long-term economic downturn that puts downward pressure on sales could also negatively affect investor perception relative to our publicly stated growth targets. Uncertainty surrounding the impacts and duration of the COVID-19 pandemic. The coronavirus ("COVID-19") outbreak that originated in China and was declared a global pandemic by the World Health Organization at the beginning of 2020 continues to cause volatility and economic disruption across the globe. The impact of COVID-19, or any variant thereof, on our business and financial performance depends on evolving factors that we cannot accurately predict, including the duration of the pandemic, restrictions on travel and transportation, the effect on our customers and on the global supply chain, the demand for our products, government actions that have or could result in further closures of or restrictions on our manufacturing plants, and the pace of economic recovery when the COVID-19 pandemic subsides. During 2020, certain of our manufacturing plants suspended operations temporarily either due to government restrictions or employee health concerns. There may be a risk of future health concerns and we cannot predict future disruptions of our plants or the duration of such future disruptions. Our customers have been negatively impacted which has had, and may continue to have, a material adverse impact on our sales. In addition, our suppliers may not have the ability to provide us with parts needed to manufacture our products. This may result in delays in shipments to us and also to our customers, which would affect our results of operations. If the COVID-19 or other health pandemic continues for an extended period of time, we will need to assess our liquidity needs. A sustained disruption in the global economy could materially affect our ability to generate sufficient cash from operations and could require us to seek additional sources of liquidity or take further actions. It could also impact our strategic objectives. |
Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk. Due to the international scope of our operations, we are subject to a complex system of commercial, tax and trade regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade, tax compliance, data-privacy, labor and safety and anti-corruption, such as the U.S. Foreign Corrupt Practices Act, and similar laws from other countries. Our numerous foreign subsidiaries and affiliates are governed by laws, rules and business practices that differ from those of the U.S., but because we are a U.S.-based company, oftentimes they are also subject to U.S. laws which can create a conflict. Despite our due diligence, there is a risk that we do not have adequate resources or comprehensive processes to stay current on changes in laws or regulations applicable to us worldwide and maintain compliance with those changes. Increased compliance requirements may lead to increased costs and erosion of desired profit margin. As a result, it is possible that the activities of these entities may not comply with U.S. laws or business practices or our Business Ethics Guide. Violations of the U.S. or local laws may result in severe criminal or civil sanctions, could disrupt our business, and result in an adverse effect on our reputation, business and results of operations or financial condition. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted. Industry Risks We may be unable to take advantage of product pricing due to the competitive marketplace and increased price sensitivity. Simplification of our customer product pricing is a key initiative to reduce the complexity in which we operate. The current competitive landscape, coupled with macroeconomic factors, could impact our ability to achieve our pricing targets. These pressures, along with internal constraints, may limit our ability to sell our products at our expected prices and may result in a change to the mix of product offerings or where we have a competitive advantage. Increasing our prices in this competitive market, where customers are very price sensitive, could have an adverse effect on our financial condition or operating results. We are subject to competitive risks associated with developing innovative products and technologies, including, but not limited to, our inability to expand as rapidly or aggressively in the global market as our competitors, our customers ceasing to pay for innovation and competitive challenges to our products, technology and the underlying intellectual property. Our products are sold in competitive markets throughout the world. Competition is based on product features and design, brand recognition, reliability, durability, technology, breadth of product offerings, price, customer relationships and after-sale service. Although we believe that the performance and price characteristics of our products will produce competitive solutions for our customers’ needs, our products are generally priced higher than our competitors’ products. This is due to our dedication to innovation and continued investments in research and development. We believe that customers will pay for the innovations and quality in our products. However, it may be difficult for us to compete with lower priced products offered by our competitors and there can be no assurance that our customers will continue to choose our products over products offered by our competitors. If our products, markets and services are not competitive, we may experience a decline in sales volume, an increase in price discounting and a loss of market share, which would adversely impact our revenues, margin and the success of our operations. Competitors may also initiate litigation to challenge the validity of our patents or claims, allege that we infringe upon their patents, violate our patents or they may use their resources to design comparable products that avoid infringing our patents. Regardless of whether such litigation is successful, such litigation could significantly increase our costs and divert management’s attention from the operation of our business, which could adversely affect our results of operations and financial condition. | Increases in the cost of, quality, or disruption in the availability of, raw materials and components that we purchase or labor required to manufacture our products could negatively impact our operating results or financial condition. Our sales growth, expanding geographical footprint and continued use of sole-source vendors, coupled with suppliers’ potential credit issues, could lead to an increased risk of a breakdown in our supply chain. Our use of sole-source vendors creates a concentration risk. There is an increased risk of defects due to the highly configured nature of our purchased component parts that could result in quality issues, returns or production slowdowns. In addition, modularization may lead to more sole-sourced products and as we seek to outsource the design of certain key components, we risk loss of proprietary control and becoming more reliant on a sole source. There is also a risk that the vendors we choose to supply our parts and equipment fail to comply with our quality expectations, thus damaging our reputation for quality and negatively impacting sales. A global semiconductor supply shortage is impacting multiple industries and could have an impact on the production of our products, and in turn, could impact our performance in 2021. Additionally, recent disruptions of transportation, including reduced availability of containers and air transport in addition to port or border congestion, have caused, and may continue to cause, increased costs and delays in certain instances. These pressures on obtaining raw materials and shipping finished goods to customers could adversely impact our financial results. We have and may continue to experience higher than normal wage inflation due to skilled labor shortages. In addition, we have incurred costs associated with tariffs on certain raw materials used in our manufacturing processes. The labor shortages and tariff costs have unfavorably impacted our gross profit margins and could continue to do so if actions we are taking are not effective at offsetting these rising costs. Changes and uncertainties related to government fiscal and tax policies, including increased duties, tariffs, or other restrictions, could adversely affect demand for our products, the cost of the products we manufacture or our ability to cost-effectively source raw materials, all of which could have a negative impact on our financial results. Increasing cost pressures could negatively impact our ability to achieve our strategic objectives and affect our financial results. We are dependent on key suppliers to make certain materials available at a contracted price. If labor, overhead, and material costs increase, we may not be able to offset these increased manufacturing costs with a higher finished product price. We also may not be able to push those direct cost increases onto our customers in a timely manner given the competitive environment. A decline in demand for our products may have a direct impact on our ability to achieve better pricing through volume discounts. We are subject to product liability claims and product quality issues that could adversely affect our operating results or financial condition. Our business exposes us to potential product liability risks that are inherent in the design, manufacturing and distribution of our products. If products are used incorrectly by our customers, injury may result leading to product liability claims against us. Some of our products or product improvements may have defects or risks that we have not yet identified that may give rise to product quality issues, liability and warranty claims. Quality issues may also arise due to changes in parts or specifications with suppliers and/or changes in suppliers. If product liability claims are brought against us for damages that are in excess of our insurance coverage or for uninsured liabilities and it is determined we are liable, our business could be adversely impacted. Any losses we suffer from any liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may have a negative impact on our business and operating results. We could experience a material design or manufacturing failure in our products, a quality system failure, other safety issues, or heightened regulatory scrutiny that could warrant a recall of some of our products. Any unforeseen product quality problems could result in loss of market share, reduced sales and higher warranty expense. |
Operational Risks Our ability to effectively operate our Company could be adversely affected if we are unable to attract and retain key personnel and other highly skilled employees, provide employee development opportunities and create effective succession planning strategies. Our growth strategy, expanding global footprint, changing workforce demographics and increased improvements in technology and business processes designed to enhance the customer experience are putting increased pressure on human capital strategies designed to recruit, retain and develop top talent. Our continued success will depend on, among other things, the skills and services of our executive officers and other key personnel. Our ability to attract and retain highly qualified managerial, technical, manufacturing, research, sales and marketing personnel also impacts our ability to effectively operate our business. As companies grow and increase their hiring activities, there is an inherent risk of increased employee turnover and the loss of valuable employees in key positions, especially in emerging markets. We believe the increased loss of key personnel within a concentrated region could adversely affect our sales growth. In addition, there is a risk that we may not have adequate talent acquisition resources and employee development resources to support our future hiring needs and provide training and development opportunities to all employees. This, in turn, could impede our workforce from embracing change and leveraging the improvements we have made in technology and other business process enhancements. We may not be able to develop or manage strategic planning and growth processes or the related operational plans to deliver on our strategies and establish a broad organization alignment, thereby impairing our ability to achieve future performance expectations. We are continuing to refine our global company strategy to guide our next phase of performance as our structure has become more complex due to recent acquisitions. We continue to consolidate and reallocate resources as part of our ongoing efforts to optimize our cost structure and to drive synergies and growth. Our operating results may be negatively impacted if we are unable to implement new processes and manage organizational changes, which include changes to our go-to-market strategy, systems and processes; simultaneous focus on expense control and growth; and introduction of alternative cleaning methods. In addition, if we do not effectively realize and sustain the benefits that these transformations are designed to produce, we may not fully realize the anticipated savings of these actions or they may negatively impact our ability to serve our customers or meet our strategic objectives. We may not be able to upgrade and evolve our information technology systems as quickly as we wish and we may encounter difficulties as we upgrade and evolve these systems to support our growth strategy and business operations, which could adversely impact our abilities to accomplish anticipated future cost savings and better serve our customers. We have many information technology systems that are important to the operation of our business and are in need of upgrading in order to effectively implement our growth strategy. Given our greater emphasis on customer-facing technologies, we may not have adequate resources to upgrade our systems at the pace which the current business environment demands. Additionally, significantly upgrading and evolving the capabilities of our existing systems could lead to inefficient or ineffective use of our technology due to lack of training or expertise in these evolving technology systems. These factors, among other things, could lead to significant expenses, adversely impacting our results of operations and hindering our ability to offer better technology solutions to our customers.
| We may encounter risks to our IT infrastructure, such as access and security, that may not be adequately designed to protect critical data and systems from theft, corruption, unauthorized usage, viruses, sabotage or unintentional misuse. Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to IT systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company, its products and its customers. We seek to deploy comprehensive measures to deter, prevent, detect, react to and mitigate these threats, including identity and access controls, data protection, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems. Despite these efforts, cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include financial loss, reputational damage, litigation with third parties, theft of intellectual property, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness and results of operations. We may be unable to conduct business if we experience a significant business interruption in our computer systems, manufacturing plants or distribution facilities for a significant period of time. We rely on our computer systems, manufacturing plants and distribution facilities to efficiently operate our business. If we experience an interruption in the functionality in any of these items for a significant period of time for any reason, we may not have adequate business continuity planning contingencies in place to allow us to continue our normal business operations on a long-term basis. In addition, the increase in customer-facing technology raises the risk of a lapse in business operations. Therefore, significant long-term interruption in our business could cause a decline in sales, an increase in expenses and could adversely impact our financial results. Our ability to manage the health and safety of our global workforce may lead to increased business disruption and financial penalties. We remain focused on the health and safety measures that impact our business from a manufacturing perspective. The Company had to adjust quickly to new working conditions as a result of the COVID-19 pandemic, including making enhancements as new health information was received. In the future, the Company may not adapt to new health crises quickly enough, resulting in a decrease in resource capacity and overall health and wellness of our workforce that could cause fines, reputational damage, or business disruptions. Also, there may be further enhancements and costs to the Company related to any new health guidelines and protocols. Our manufacturing teams monitor the effectiveness of our wellness and safety programs, while the Company continues to implement more tailored health initiatives for those working from home. Managing additional health guidelines and protocols for the health and safety of our employees may adversely affect our business, financial conditions or operating results. |
ITEM 5 – Market for Registrant’s Common Equity, Related StockholderShareholder Matters and Issuer Purchases of Equity Securities
MARKET INFORMATION – Tennant's common stock is traded on the New York Stock Exchange, under the ticker symbol TNC. As of February 15, 2018,12, 2021, there were 324280 shareholders of record. The common stock price was $61.80 per share on February 15, 2018. The accompanying chart shows the high and low sales prices for the Company’s shares for each full quarterly period over the past two years as reported by the New York Stock Exchange:
| 2017 | 2016 | ||||||||||||||
| High | Low | High | Low | ||||||||||||
| First Quarter | $ | 76.10 | $ | 64.30 | $ | 55.71 | $ | 45.92 | |||||||
| Second Quarter | 75.00 | 69.15 | 56.33 | 49.97 | |||||||||||
| Third Quarter | 76.80 | 60.05 | 66.54 | 52.51 | |||||||||||
| Fourth Quarter | 73.15 | 60.30 | 76.80 | 60.21 | |||||||||||
DIVIDEND INFORMATION – Cash dividends on Tennant’s common stock have been paid for 7376 consecutive years. Tennant’s annual cash dividend payout increased for the 46
DIVIDEND REINVESTMENT OR DIRECT DEPOSIT OPTIONS – Shareholders have the option of reinvesting quarterly dividends in additional shares of Company stock or having dividends deposited directly to a bank account. The Transfer Agent should be contacted for additional information.
TRANSFER AGENT AND REGISTRAR – Shareholders with a change of address or questions about their account may contact:
Equiniti Trust Company
Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0854
(800) 468-9716
| Plan Category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | (b) Weighted-average exercise price of outstanding options, warrants and rights(2) | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a)) | |||
| Equity compensation plans approved by security holders | 1,304,385 | $47.47 | 1,155,110 | |||
| Equity compensation plans not approved by security holders | — | — | — | |||
| Total | 1,304,385 | $47.47 | 1,155,110 | |||
SHARE REPURCHASES – On October 31, 2016, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of our common stock. This is in addition to the 393,965392,892 shares remaining under our prior repurchase program. Share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offset the dilutive effect of shares issued through our share-based compensation programs.transactions. As of December 31, 2017,2020, our 2017 Credit Agreement restricts the payment of dividends or repurchasing of stock if, after giving effect to such payments and assuming no default exists or would result from such payment, our leverage ratio is greater than 2.50 to 1, in such case limiting such payments to an amount ranging from $50.0 million to $75.0 million during any fiscal year based on our leverage ratio after giving effect to such payment. Our Senior Notes due 2025 also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.
For the Quarter Ended December 31, 2017 | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||
| October 1–31, 2017 | 228 | $ | 68.94 | — | 1,393,965 | |||||||
| November 1–30, 2017 | 922 | 67.35 | — | 1,393,965 | ||||||||
| December 1–31, 2017 | — | — | — | 1,393,965 | ||||||||
| Total | 1,150 | $ | 67.66 | — | 1,393,965 | |||||||
For the Quarter Ended | Total Number of Shares | Average Price Paid | Total Number of Shares Purchased as Part of Publicly Announced Plans or | Maximum Number of Shares that May Yet Be Purchased Under the Plans or | ||||||||
December 31, 2020 | Purchased(1) | Per Share | Programs | Programs | ||||||||
October 1–31, 2020 | 18 | $60.36 | — | 1,392,363 | ||||||||
November 1–30, 2020 | — | — | — | 1,392,363 | ||||||||
December 1–31, 2020 | — | — | — | 1,392,363 | ||||||||
Total | 18 | $60.36 | — | 1,392,363 |
(1) | Includes |
STOCK PERFORMANCE GRAPH – The following graph compares the cumulative total shareholder return on Tennant’s common stock to two indices: S&P SmallCap 600 and MorningstarS&P 500 Industrials Sector.(Sector). The graph below compares the performance for the last five fiscal years, assuming an investment of $100 on December 31, 2012,2015, including the reinvestment of all dividends.
5-YEAR CUMULATIVE TOTAL RETURN COMPARISON
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||
| Tennant Company | $100 | $156 | $168 | $133 | $171 | $176 | |||||
| S&P SmallCap 600 | $100 | $141 | $149 | $147 | $144 | $163 | |||||
| Morningstar Industrials Sector | $100 | $142 | $155 | $151 | $179 | $219 | |||||
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||
Tennant Company | $ | 100 | $ | 128 | $ | 133 | $ | 96 | $ | 146 | $ | 133 | ||||||||||||
S&P SmallCap 600 | $ | 100 | $ | 98 | $ | 111 | $ | 102 | $ | 125 | $ | 139 | ||||||||||||
Morningstar Industrials Sector | $ | 100 | $ | 119 | $ | 145 | $ | 128 | $ | 168 | n/a | |||||||||||||
S&P 500 Industrials (Sector) (TR) | $ | 100 | $ | 119 | $ | 144 | $ | 125 | $ | 161 | $ | 179 | ||||||||||||
| Years Ended December 31 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
| Financial Results: | ||||||||||||||||||||||||
| Net Sales | $ | 1,003,066 | $ | 808,572 | $ | 811,799 | $ | 821,983 | $ | 752,011 | ||||||||||||||
| Cost of Sales | 598,645 | (1) | 456,977 | 462,739 | 469,556 | 426,103 | ||||||||||||||||||
| Gross Margin - % | 40.3 | 43.5 | 43.0 | 42.9 | 43.3 | |||||||||||||||||||
| Research and Development Expense | 32,013 | 34,738 | 32,415 | 29,432 | 30,529 | |||||||||||||||||||
| % of Net Sales | 3.2 | 4.3 | 4.0 | 3.6 | 4.1 | |||||||||||||||||||
| Selling and Administrative Expense | 345,364 | (1) | 248,210 | 252,270 | (2) | 250,898 | 232,976 | (3) | ||||||||||||||||
| % of Net Sales | 34.4 | 30.7 | 31.1 | 30.5 | 31.0 | |||||||||||||||||||
| Profit from Operations | 27,044 | (1) | 68,498 | 53,176 | (2) | 72,097 | 62,403 | (3) | ||||||||||||||||
| % of Net Sales | 2.7 | 8.5 | 6.6 | 8.8 | 8.3 | |||||||||||||||||||
| Income Tax Expense | 4,913 | (1) | 19,877 | 18,336 | (2) | 18,887 | 19,647 | (3) | ||||||||||||||||
| Effective Tax Rate - % | (380.2 | ) | 29.9 | 36.4 | 27.2 | 32.8 | ||||||||||||||||||
| Net (Loss) Earnings Attributable to Tennant Company | (6,195 | ) | (1) | 46,614 | 32,088 | 50,651 | 40,231 | |||||||||||||||||
| % of Net Sales | (0.6 | ) | 5.8 | 4.0 | 6.2 | 5.3 | ||||||||||||||||||
| Per Share Data: | ||||||||||||||||||||||||
| Basic Net (Loss) Earnings Attributable to Tennant Company | $ | (0.35 | ) | (1) | $ | 2.66 | $ | 1.78 | (2) | $ | 2.78 | $ | 2.20 | (3) | ||||||||||
| Diluted Net (Loss) Earnings Attributable to Tennant Company | $ | (0.35 | ) | (1) | $ | 2.59 | $ | 1.74 | (2) | $ | 2.70 | $ | 2.14 | (3) | ||||||||||
| Diluted Weighted Average Shares | 17,695,390 | 17,976,183 | 18,493,447 | 18,740,858 | 18,833,453 | |||||||||||||||||||
| Cash Dividends | $ | 0.84 | $ | 0.81 | $ | 0.80 | $ | 0.78 | $ | 0.72 | ||||||||||||||
| Financial Position: | ||||||||||||||||||||||||
| Total Assets | $ | 993,977 | $ | 470,037 | $ | 432,295 | $ | 486,932 | $ | 456,306 | ||||||||||||||
| Total Debt | 376,839 | 36,194 | 24,653 | 28,137 | 31,803 | |||||||||||||||||||
| Total Tennant Company Shareholders’ Equity | 296,503 | 278,543 | 252,207 | 280,651 | 263,846 | |||||||||||||||||||
| Current Ratio | 1.8 | 2.2 | 2.2 | 2.4 | 2.4 | |||||||||||||||||||
| Debt-to-Capital Ratio | 56.0 | % | 11.5 | % | 8.9 | % | 9.1 | % | 10.8 | % | ||||||||||||||
| Cash Flows: | ||||||||||||||||||||||||
| Net Cash Provided by Operations | $ | 54,174 | $ | 57,878 | $ | 45,232 | $ | 59,362 | $ | 59,814 | ||||||||||||||
| Capital Expenditures, Net of Disposals | (17,926 | ) | (25,911 | ) | (24,444 | ) | (19,292 | ) | (14,655 | ) | ||||||||||||||
| Free Cash Flow | 36,248 | 31,967 | 20,788 | 40,070 | 45,159 | |||||||||||||||||||
| Other Data: | ||||||||||||||||||||||||
| Depreciation and Amortization | $ | 43,253 | $ | 18,300 | $ | 18,031 | $ | 20,063 | $ | 20,246 | ||||||||||||||
| Number of employees at year-end | 4,297 | 3,236 | 3,164 | 3,164 | 3,087 | |||||||||||||||||||
ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance, significantly reduce environmental impact and help create a cleaner, safer, healthier world. TennantThe Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including:including floor maintenance and outdoor cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, specialty surface coatings and asset management solutions. TennantOur products are used in many types of environments, including: Retailincluding retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, parking lots and streets, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance, as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.
The year-over-year comparisons in this Management's Discussion and Analysis of Financial Condition and Results of Operations are as of and for the Company completed its acquisitionyears ended December 31, 2020 and December 31, 2019, unless stated otherwise. The discussion of 2018 results and related year-over-year comparisons as of and for the years ended December 31, 2019 and December 31, 2018 are found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", of our Form 10-K for the year ended December 31, 2019.
Impact of COVID-19
Because we are a global company, our results of operations are affected by macroeconomic conditions. We continue to see economic and geopolitical uncertainty in many regions around the world. The coronavirus (COVID-19) pandemic has increased the uncertainty globally and has resulted in general economic disruption. Governments across the world have taken numerous actions to limit the spread of COVID-19, including stay-at-home orders, which have reduced operating activities across global businesses.
To date, the primary impact of the IPC Group business. IPC manufacturespandemic on the Company's business has been related to a complete rangeslowdown in sales to some end markets amid widespread closures of commercial cleaningcustomer facilities and operations. We have experienced, and expect to continue experiencing, lower demand and volume for our products, including mechanized cleaning equipment, wet & dry vacuum cleaners, cleaning tools & cartsdelivery and high pressure washers. These productsshipping delays that adversely impact our businesses. During 2020, we experienced an organic sales decline of 11.8%. We believe most of the organic sales decline in the second through fourth quarters of 2020 was due to the pandemic. We are sold into similar verticalunsure whether or not this level of decline, or if the trend in the sales decline on a quarter-to-quarter basis, will continue in the future.
We are actively managing our business to respond to the COVID-19 impact. We have prioritized the health and safety of our employees and customers. We have established a dedicated enterprise-wide response team and implemented work-from-home processes for much of our workforce. We have established cross-functional and daily communications with suppliers to review, track and prioritize high-risk components. We have also identified and activated alternative suppliers, materials and components as needed. To date, we have been able to avoid major supply disruptions. Regarding transportation, we have set up tracking, reporting and communication channels with carriers to understand their risks and to evaluate available options where necessary. For the majority of 2020, there were a limited number of restrictions on our manufacturing operations. Although end market applicationsdemand was significantly lower than the same period last year, all of our factories had the ability to operate at full capacity.
We have also taken a number of actions globally to minimize the financial impact such as those listed above, but also into office cleaningsuspending a significant amount of business-related travel, reducing non-essential discretionary and hospitality vertical markets throughproject spending, applying for government wage subsidies and implementing merit freezes, hiring freezes, and other headcount-related actions, including a global direct salescombination of salary cuts, reduced work schedules and/or furlough programs for all employees globally, while operating within the local laws and service organizationregulations, and networkdeveloping multiple financial scenarios to ensure liquidity and to identify additional actions, if needed.
We continue to monitor the continuously evolving situation and guidance from authorities. As a result of distributors. IPC markets productsthe disruptions and services undervolatility caused by COVID-19, we cannot reasonably estimate the following valued brands: IPC, Gansow, Vaclensa, Portotecnica, Sotecolong-term impact of the pandemic on our financials results. We expect that the longer the period of disruption continues, the more material the adverse impact will be on our business operations, financial performance and private-label brands.results of operations.
Historical Results
The following table compares the historical results of operations for the years ended December 31, 2017, 20162020, 2019 and 20152018 in dollars and as a percentage of Net Sales (in thousands,millions, except per share amounts and percentages):
| 2017 | % | 2016 | % | 2015 | % | |||||||||||||||
| Net Sales | $ | 1,003,066 | 100.0 | $ | 808,572 | 100.0 | $ | 811,799 | 100.0 | |||||||||||
| Cost of Sales | 598,645 | 59.7 | 456,977 | 56.5 | 462,739 | 57.0 | ||||||||||||||
| Gross Profit | 404,421 | 40.3 | 351,595 | 43.5 | 349,060 | 43.0 | ||||||||||||||
| Operating Expense: | ||||||||||||||||||||
| Research and Development Expense | 32,013 | 3.2 | 34,738 | 4.3 | 32,415 | 4.0 | ||||||||||||||
| Selling and Administrative Expense | 345,364 | 34.4 | 248,210 | 30.7 | 252,270 | 31.1 | ||||||||||||||
| Impairment of Long-Lived Assets | — | — | — | — | 11,199 | 1.4 | ||||||||||||||
| Loss on Sale of Business | — | — | 149 | — | — | — | ||||||||||||||
| Total Operating Expense | 377,377 | 37.6 | 283,097 | 35.0 | 295,884 | 36.4 | ||||||||||||||
| Profit from Operations | 27,044 | 2.7 | 68,498 | 8.5 | 53,176 | 6.6 | ||||||||||||||
| Other Income (Expense): | ||||||||||||||||||||
| Interest Income | 2,405 | 0.2 | 330 | — | 172 | — | ||||||||||||||
| Interest Expense | (25,394 | ) | (2.5 | ) | (1,279 | ) | (0.2 | ) | (1,313 | ) | (0.2 | ) | ||||||||
| Net Foreign Currency Transaction Losses | (3,387 | ) | (0.3 | ) | (392 | ) | — | (954 | ) | (0.1 | ) | |||||||||
| Other Expense, Net | (1,960 | ) | (0.2 | ) | (666 | ) | (0.1 | ) | (657 | ) | (0.1 | ) | ||||||||
| Total Other Expense, Net | (28,336 | ) | (2.8 | ) | (2,007 | ) | (0.2 | ) | (2,752 | ) | (0.3 | ) | ||||||||
| (Loss) Profit Before Income Taxes | (1,292 | ) | (0.1 | ) | 66,491 | 8.2 | 50,424 | 6.2 | ||||||||||||
| Income Tax Expense | 4,913 | 0.5 | 19,877 | 2.5 | 18,336 | 2.3 | ||||||||||||||
| Net (Loss) Earnings Including Noncontrolling Interest | (6,205 | ) | (0.6 | ) | 46,614 | 5.8 | 32,088 | 4.0 | ||||||||||||
| Net Loss Attributable to Noncontrolling Interest | (10 | ) | — | — | — | — | — | |||||||||||||
| Net (Loss) Earnings Attributable to Tennant Company | $ | (6,195 | ) | (0.6 | ) | $ | 46,614 | 5.8 | $ | 32,088 | 4.0 | |||||||||
| Net (Loss) Earnings Attributable to Tennant Company per Share | $ | (0.35 | ) | $ | 2.59 | $ | 1.74 | |||||||||||||
2020 | % | 2019 | % | 2018 | % | |||||||||||||||||||
Net Sales | $ | 1,001.0 | 100.0 | $ | 1,137.6 | 100.0 | $ | 1,123.5 | 100.0 | |||||||||||||||
Cost of Sales | 593.2 | 59.3 | 675.9 | 59.4 | 678.5 | 60.4 | ||||||||||||||||||
Gross Profit | 407.8 | 40.7 | 461.7 | 40.6 | 445.0 | 39.6 | ||||||||||||||||||
Operating Expense: | ||||||||||||||||||||||||
Research and Development Expense | 30.1 | 3.0 | 32.7 | 2.9 | 30.7 | 2.7 | ||||||||||||||||||
Selling and Administrative Expense | 314.0 | 31.4 | 357.2 | 31.4 | 356.3 | 31.7 | ||||||||||||||||||
Total Operating Expense | 344.1 | 34.4 | 389.9 | 34.3 | 387.0 | 34.4 | ||||||||||||||||||
Profit from Operations | 63.7 | 6.4 | 71.8 | 6.3 | 58.0 | 5.2 | ||||||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Interest Income | 3.3 | 0.3 | 3.3 | 0.3 | 3.0 | 0.3 | ||||||||||||||||||
Interest Expense | (20.7 | ) | (2.1 | ) | (21.1 | ) | (1.9 | ) | (23.3 | ) | (2.1 | ) | ||||||||||||
Net Foreign Currency Transaction Losses | (5.3 | ) | (0.5 | ) | (0.7 | ) | (0.1 | ) | (1.1 | ) | (0.1 | ) | ||||||||||||
Other Income (Expense), Net | 0.1 | 0.0 | 0.7 | 0.1 | (0.8 | ) | (0.1 | ) | ||||||||||||||||
Total Other Expense, Net | (22.6 | ) | (2.3 | ) | (17.8 | ) | (1.6 | ) | (22.2 | ) | (2.0 | ) | ||||||||||||
Profit Before Income Taxes | 41.1 | 4.1 | 54.0 | 4.7 | 35.8 | 3.2 | ||||||||||||||||||
Income Tax Expense | 7.4 | 0.7 | 8.1 | 0.7 | 2.3 | 0.2 | ||||||||||||||||||
Net Earnings Including Noncontrolling Interest | 33.7 | 3.4 | 45.9 | 4.0 | 33.5 | 3.0 | ||||||||||||||||||
Net Earnings Attributable to Noncontrolling Interest | — | — | 0.1 | — | 0.1 | — | ||||||||||||||||||
Net Earnings Attributable to Tennant Company | $ | 33.7 | 3.4 | $ | 45.8 | 4.0 | $ | 33.4 | 3.0 | |||||||||||||||
Net Earnings Attributable to Tennant Company per Share - Diluted | $ | 1.81 | $ | 2.48 | $ | 1.82 | ||||||||||||||||||
Net Sales
Net Sales in 20172020 totaled $1,003.1$1,001.0 million, a 24.1% increase12.0% decrease as compared to Net Sales of $808.6$1,137.6 million in 2016.
The components of the consolidated Net Sales change for 20172020 as compared to 2016,2019, and 20162019 as compared to 2015,2018, were as follows:
| Growth Elements | 2017 v. 2016 | 2016 v. 2015 | |
| Organic Growth: | |||
| Volume | (0.1%) | 1.1% | |
| Price | 1.5% | —% | |
| Organic Growth | 1.4% | 1.1% | |
| Foreign Currency | 0.5% | (1.0%) | |
| Acquisitions | 22.2% | (0.5%) | |
| Total | 24.1% | (0.4%) | |
2020 v. 2019 | 2019 v. 2018 | |||
Total reported net sales | (12.0)% | 1.3% | ||
Foreign currency | (0.2)% | (2.2)% | ||
Acquisitions | 0.0% | 1.3% | ||
Total organic net sales | (11.8)% | 2.2% |
The 24.1%
• | Organic sales decreased approximately 11.8% which excludes the effects of foreign currency translation exchange. The organic sales decrease was primarily driven by volume declines across all regions, largely driven by the impact of the COVID-19 pandemic. The decrease was partially offset by continued strong demand for our autonomous cleaning machines in North America; and |
• | An unfavorable impact from foreign currency exchange of approximately 0.2%. |
The following table sets forth annual Net Sales by geographic area and the related percentage change from the prior year (in thousands,millions, except percentages):
| 2017 | % | 2016 | % | 2015 | |||||||||||||
| Americas | $ | 640,274 | 5.5 | $ | 607,026 | 2.6 | $ | 591,405 | |||||||||
| Europe, Middle East and Africa | 273,738 | 112.1 | 129,046 | (7.7 | ) | 139,834 | |||||||||||
| Asia Pacific | 89,054 | 22.8 | 72,500 | (10.0 | ) | 80,560 | |||||||||||
| Total | $ | 1,003,066 | 24.1 | $ | 808,572 | (0.4 | ) | $ | 811,799 | ||||||||
2020 | % | 2019 | % | 2018 | ||||||||||||||||
Americas | $ | 631.0 | (12.7 | ) | $ | 722.4 | 4.5 | $ | 691.0 | |||||||||||
Europe, Middle East and Africa | 278.2 | (9.6 | ) | 307.6 | (8.3 | ) | 335.6 | |||||||||||||
Asia Pacific | 91.8 | (14.7 | ) | 107.6 | 11.0 | 96.9 | ||||||||||||||
Total | $ | 1,001.0 | (12.0 | ) | $ | 1,137.6 | 1.3 | $ | 1,123.5 | |||||||||||
Americas
– InEurope, Middle East and Florock acquisitionsAfrica – EMEA Net Sales in 2020 decreased 9.6% to $278.2 million as compared to 2019 Net Sales of $307.6 million. Foreign currency exchange within EMEA favorably impacted Net Sales by approximately 4.4%1.4%. In addition, a favorable direct impact of foreign currency translation exchange effects within the Americas impacted Net Sales by approximately 0.4%Organic sales declines in 2017. As a result, organic sales growth in the Americas favorably impacted Net Sales by approximately 0.7% due to strong sales performance in Latin America, particularly Brazil and Mexico, from focused go-to-market strategies in our direct channel. This was partially offset by lower sales in North America, where sales growth through the distribution channel were more than offset by service sales.
Asia Pacific
– APAC Net Sales inGross Profit
Gross Profit margin was 32040.7%, or 10 basis points lowerhigher in 20172020 compared to 2016 due2019. The increase was primarily todriven by actions directly resulting from the $7.2 million, or approximately 70 basis points, fair value inventory step-up flow throughCompany's enterprise strategy efforts such as pricing and cost-out initiatives, benefits from government programs related to our acquisition of
Operating Expenses
Research and Development Expense
–R&D Expense decreased $2.7$2.6 million, or 7.8%8.0%, in 20172020 as compared to 2016.2019. As a percentage of Net Sales, 20172020 R&D Expense decreased 110increased 10 basis points compared to the prior year. The decrease in R&D spending was primarily due to headcount reduction related to the first quarter 2017 restructuring action.
Selling and Administrative Expense
– Selling and Administrative Expense ("S&A Expense")Total Other Expense, Net
Interest Income
– Interest Income wasInterest Expense
– Interest Expense wasNet Foreign Currency Transaction Losses
–Net Foreign Currency Transaction Losses wereOther Expense,Income (Expense), Net
Income Taxes
| 2017 | % | 2016 | % | 2015 | % | ||||||||
| U.S. operations | $ | 7,465 | (577.8) | $ | 54,018 | 81.2 | $ | 51,189 | 101.5 | ||||
| Foreign operations | (8,757 | ) | 677.8 | 12,473 | 18.8 | (765 | ) | (1.5 | ) | ||||
| Total | $ | (1,292 | ) | 100.0 | $ | 66,491 | 100.0 | $ | 50,424 | 100.0 | |||
The overall effective income tax rate was (380.2)%, 29.9%17.9% and 36.4%15.1% in 2017, 20162020 and 2015,2019, respectively.
The tax expense for 20172020 included a $3.7$2.2 million of tax benefitbenefits associated with $18.8$7.5 million of acquisition and financing costs related tonon-recurring expenses, which reduced the IPC Group acquisition, a $3.0 million tax benefit associated with a $10.5 million restructuring charge, a $2.4 million tax benefit associated with a $6.2 million pension settlement, a $2.0 million tax benefit associated with $7.2 million of expense related to inventory step-up amortization, a $2.0 million provisional tax expense related to the write-down of net U.S. deferred tax assets at the lower enacted tax rates and a $0.4 million provisional tax expense related to the transition tax on cash and cash equivalent balances related to accumulated earnings associated with our international operations as a result of Tax Legislation. These special items impacted the 2017 year-to-date overall effective tax rate by 412.9%.
Our effective tax rate fluctuates from year to year due to the global nature of our operations. Excluding the 2017 special items and the effect of the Tax Act, theThe effective tax rate increased to 17.9% in 2020 from 29.9%15.1% in 20162019 primarily due primarily to the mix in full year taxable earnings by country. As a resultcountry, fewer tax benefits related to the exercise of the Tax Act, we expect the income tax rate to be favorably impacted.
Other Comprehensive Income (Loss)
Foreign Currency Translation Adjustments
– For the years ended December 31,During 2020, we recorded a pre-tax currency translation gainsgain of $28.4$16.4 million. These adjustments wereThis gain was caused primarily by the appreciation of the Euro against the U.S. dollar. In 2017, the Euro appreciated against the U.S. dollar by approximately 14%.
Pension and RetireePostretirement Medical Benefits
| Pension and Postretirement Medical Benefits | |||||||||
| 2017 | 2016 | 2015 | |||||||
| Net actuarial loss (gain) | $ | 622 | $ | 2,357 | $ | (2,940 | ) | ||
| Amortization of prior service cost | — | (41 | ) | (67 | ) | ||||
| Amortization of net actuarial loss | (117 | ) | (68 | ) | (1,114 | ) | |||
| Settlement Charge | (6,373 | ) | — | — | |||||
| Total recognized in other comprehensive (income) loss | $ | (5,868 | ) | $ | 2,248 | $ | (4,121 | ) | |
Pension and Postretirement Medical Benefits | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Prior service costs | $ | 0.1 | $ | — | $ | 0.1 | ||||||
Net actuarial loss (gain) | 1.3 | 0.4 | (1.7 | ) | ||||||||
Amortization of net actuarial loss | (0.1 | ) | 0.1 | (0.1 | ) | |||||||
Total recognized in other comprehensive loss (income) | $ | 1.3 | $ | 0.5 | $ | (1.7 | ) | |||||
The $5.9$1.3 million gain
Cash Flow Hedging
– For the years ended December 31,The $2.9 million gain of $0.2 million in
Liquidity and Capital Resources
Liquidity
– Cash,Our Debt-to-Capital ratio was 56.0%43.2% as of December 31, 2017,2020, compared with 11.5%48.5% as of December 31, 2016.2019. Our capital structure was comprised of $376.8$308.5 million of Debt and $296.5$404.8 million of Tennant Company Shareholders’ Equity as of December 31, 2017.
| 2017 | 2016 | 2015 | |||||||||
| Operating Activities | $ | 54,174 | $ | 57,878 | $ | 45,232 | |||||
| Investing Activities: | |||||||||||
| Purchases of Property, Plant and Equipment, Net of Disposals | (17,926 | ) | (25,911 | ) | (24,444 | ) | |||||
| Proceeds from Principal Payments Received on Long-Term Note Receivable | 667 | — | — | ||||||||
| Issuance of Long-Term Note Receivable | (1,500 | ) | (2,000 | ) | — | ||||||
| Acquisitions of Businesses, Net of Cash Acquired | (354,073 | ) | (12,933 | ) | — | ||||||
| Purchase of Intangible Asset | (2,500 | ) | — | — | |||||||
| Proceeds from Sale of Business | — | 285 | 1,185 | ||||||||
| (Increase) Decrease in Restricted Cash | (92 | ) | 116 | (322 | ) | ||||||
| Financing Activities | 319,473 | (9,558 | ) | (61,405 | ) | ||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 2,142 | (1,144 | ) | (1,908 | ) | ||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | $ | 365 | $ | 6,733 | $ | (41,662 | ) | ||||
Operating Activities
– Cash provided by operating activities was| 2017 | 2016 | ||
| DSO | 63 | 59 | |
| DIOH | 96 | 89 | |
Investing Activities
– Net cash used in investing activities wasFinancing Activities
–At December 31, 2017,2020, there were 1,393,9651,392,363 remaining shares authorized for repurchase.
There were no shares repurchased in 2017 in the open market, 246,474 shares repurchased in 2016 and 764,046 shares repurchased during 2015, at average repurchase prices of $51.78 during 2016 and $60.20 during 2015.2020, 2019 or 2018. Our 2017 Credit Agreement, as defined below, restricts the payment of dividends or repurchasing of stock if, after giving effect to such payments and assuming no default exists or would result from such payment, our leverage ratio is greater than 2.50 to 1, in such case limiting such payments to an amount ranging from $50.0 million to $75.0 million during any fiscal year based on our leverage ratio after giving effect to such payment. Our Senior Notes due 2025 (the "Notes") also contain certain restrictions, which are generally less restrictive than those contained in the 2017 Credit Agreement.
Indebtedness – In order to finance the acquisition of the IPC Group, on April 4,During 2017, the Company and certain of our foreign subsidiaries entered into a Credit Agreement (the “2017 Credit Agreement”) with JPMorgan, as administrative agent, Goldman Sachs Bank USA, as syndication agent, Wells Fargo, National Association, U.S. Bank National Association, and HSBC Bank USA, National Association, as co-documentation agents, and the lenders (including JPMorgan) from time to time party thereto.
Borrowings denominated in U.S. dollars under the 2017 we issuedCredit Agreement bear interest at a rate per annum equal to the adjusted London interbank offered rate ("LIBOR") for a one month period and sold $300,000 in aggregate principal amountdo not have fallback language for when LIBOR is no longer available. Uncertainty related to the LIBOR phase out at the end of 2021 may adversely impact the value of, and our 5.625% Senior Notes due 2025 (the “Notes”), pursuantobligations under, the 2017 Credit Agreement. We may need to an Indenture, dated as of April 18, 2017, amongrenegotiate our financial obligations that utilize LIBOR. The Company continues to assess and monitor regulatory developments during the company, the Guarantors (as defined therein), and Wells Fargo Bank, National Association, a national banking association, as trustee. The Notes are guaranteed by Tennant Coatings, Inc. and Tennant Sales and Service Company (collectively, the “Guarantors”), which are wholly owned subsidiaries of the company.
For further details regarding our indebtedness, see Note 9 to the Consolidated Financial Statements.
Contractual Obligations
– Our contractual obligations as of December 31,| Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | |||||||||||||||
Long-term debt(1) | $ | 380,000 | $ | 5,000 | $ | 16,250 | $ | 58,750 | $ | 300,000 | |||||||||
Interest payments on long-term debt(1) | 132,744 | 19,587 | 38,549 | 36,217 | 38,391 | ||||||||||||||
| Capital leases | 3,279 | 1,609 | 1,540 | 130 | — | ||||||||||||||
| Interest payments on capital leases | 300 | 187 | 111 | 2 | — | ||||||||||||||
Retirement benefit plans(2) | 1,239 | 1,239 | — | — | — | ||||||||||||||
Deferred compensation arrangements(3) | 6,257 | 1,356 | 1,894 | 721 | 2,286 | ||||||||||||||
Operating leases(4) | 36,931 | 14,083 | 15,261 | 4,991 | 2,596 | ||||||||||||||
Purchase obligations(5) | 57,848 | 57,848 | — | — | — | ||||||||||||||
Other(6) | 11,410 | 11,410 | — | — | — | ||||||||||||||
| Total contractual obligations | $ | 630,008 | $ | 112,319 | $ | 73,605 | $ | 100,811 | $ | 343,273 | |||||||||
Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | ||||||||||||||||
Long-term debt(1) | $ | 310.0 | $ | 10.0 | $ | — | $ | 300.0 | $ | — | ||||||||||
| Interest payments on long-term debt(1) | 73.3 | 17.0 | 33.8 | 22.5 | — | |||||||||||||||
Finance leases | 0.1 | 0.1 | — | — | — | |||||||||||||||
| Secured borrowings payment | 1.5 | 0.8 | 0.7 | — | — | |||||||||||||||
| Interest payments on secured borrowings | 0.1 | 0.1 | — | — | — | |||||||||||||||
| Retirement benefit plans(2) | 1.2 | 1.2 | — | — | — | |||||||||||||||
| Deferred compensation arrangements(3) | 3.8 | 1.7 | 0.7 | 0.3 | 1.1 | |||||||||||||||
Operating leases(4) | 48.0 | 17.6 | 22.4 | 7.1 | 0.9 | |||||||||||||||
| Purchase obligations(5) | 56.3 | 56.3 | — | — | — | |||||||||||||||
Total contractual obligations | $ | 494.3 | $ | 104.8 | $ | 57.6 | $ | 329.9 | $ | 2.0 | ||||||||||
(1) | Long-term debt represents borrowings through the Notes and the 2017 Credit Agreement with JPMorgan. Interest on the Notes accrues at the rate of 5.625% per annum and is payable semiannually in cash on each May 1 and November 1. Repayment of the principal amount of the Senior Notes is due upon expiration of the agreement in 2025. Interest payments on our 2017 Credit Agreement with JPMorgan were calculated using the December 31, 2020 30-day LIBOR rate plus a spread. |
(2) | Our retirement benefit plans, as described in Note 13 to the Consolidated Financial Statements, require us to make contributions to the plans from time to time. Contributions to the various plans are dependent upon a number of factors including the market performance of plan assets, if any, and future changes in interest rates, which impact the actuarial measurement of plan obligations. As a result, we have only included our 2021 expected contribution in the contractual obligations table. |
(3) | The unfunded deferred compensation arrangements covering certain current and retired management employees totaled $3.8 million as of December 31, 2020. Our estimated distributions in the contractual obligations table are based upon a number of assumptions including termination dates and participant distribution elections. |
(4) | Operating lease commitments consist primarily of office and warehouse facilities, vehicles and office equipment as well as the estimated liability for residual value guarantee as discussed in Note 15 to the Consolidated Financial Statements. |
(5) | Purchase obligations include all known open purchase orders, contractual purchase commitments and contractual obligations as of December 31, 2020. |
Total contractual obligations exclude our gross unrecognized tax benefits of $2.2$6.4 million and accrued interest and penalties of $0.5$0.7 million as of December 31, 2017.2020. We expect to make cash outlays in the future related to uncertain tax positions. However, due to the uncertainty of the timing of future cash flows, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. For further information related to unrecognized tax benefits, see Note 1617 to the Consolidated Financial Statements.
Newly Issued Accounting Guidance
See Note 1 to the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.
Our Consolidated Financial Statements are based on the selection and application of accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to the Consolidated Financial Statements. We believe that the following policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our Consolidated Financial Statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.
Goodwill
– Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition. We analyzeWhen we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. The qualitative test is used as an indicator to identify if there is potential goodwill impairment. If the qualitative test indicates there may be an impairment, we perform the quantitative test, is performed which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.
We perform our annual goodwill impairment analysis as of year end orOctober 1 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount, and use our judgment to develop assumptions foramount. In 2020, we changed the discounted cash flow model that we use, if necessary. Management assumptions include forecasting revenues and margins, estimating capital expenditures, depreciation, amortization and discount rates.
In 2020, we elected to perform the quantitative goodwill test, which indicated that there was no goodwill impairment in any of our reporting units’ carrying amount exceeding its fair value, we would write downunits as of our annual assessment date. The EMEA reporting units’ carrying amount to its fair value and would record an impairment charge in our results of operations inunit was the period such determination is made. Subsequent reversal of goodwill impairment charges is not permitted. We performed an analysis of qualitative factors to determine whether it is more likely than not thatonly reporting unit for which the fair value was not substantially in excess of aits carrying value. The EMEA reporting unit, is less than itswith $168.8 million of carrying amount and, based upon our analysis, no qualitative indicatorsvalue of impairment existgoodwill at December 31, 2017. 2020, had an excess of reporting unit fair value over carrying value of 7% as of our annual assessment date.
We had Goodwillgoodwill of $186.0$207.8 million as of December 31, 2017.
Income Taxes
– We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax obligations based on expected income, statutory tax rates and tax planning opportunities in the various jurisdictions. We also establish reserves for uncertain tax matters that are complex in nature and uncertain as to the ultimate outcome. Although we believe that our tax return positions are fully supportable, we consider our ability to ultimately prevail in defending these matters when establishing these reserves. We adjust our reserves in light of changing facts and circumstances, such as the closing of a tax audit. We believe that our current reserves are adequate. However, the ultimate outcome may differ from our estimates and assumptions and could impact the income tax expense reflected in our Consolidated Statements of Operations.Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our Consolidated Statements of Operations. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation reserve against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2017,2020, a valuation allowance of $9.7$7.5 million was recorded against foreign tax loss carryforwards, foreign tax credit carryforwards and state credit carryforwards.
This annual reportAnnual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, containcontains certain statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include:
• | Geopolitical and economic uncertainty throughout the world. | |
• | Uncertainty surrounding the COVID-19 pandemic. | |
| • | Ability to comply with global laws and regulations. | |
| • | Ability to adapt to price sensitivity. | |
| • | Competition in our business. | |
| • | Fluctuations in the cost, quality or availability of raw materials and purchased components. | |
| • | Ability to adjust pricing to respond to cost pressures. | |
| • | Unforeseen product liability claims or product quality issues. | |
| • | Ability to attract, retain and develop key personnel and create effective succession planning strategies. | |
| • | Ability to effectively manage strategic plan or growth processes. | |
| • | Ability to successfully upgrade and evolve our information technology systems. | |
| • | Ability to successfully protect our information technology systems from cybersecurity risks. | |
| • | Occurrence of a significant business interruption. | |
| • | Ability to maintain the health and safety of our workforce. | |
| • | Ability to integrate acquisitions. | |
• | Ability to develop and commercialize new innovative products and services. |
We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Information about factors that could materially affect our results can be found in Part I, Item 1A - Risk Factors."Risk Factors" of this Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.
We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the Securities and Exchange CommissionSEC and in other written statements on related subjects. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties.
Commodity Risk
–We are subject to exposures resulting from potential cost increases related to our purchase of raw materials or other product components. We do not use derivative commodity instruments to manage our exposures to changes in commodity prices such as steel, oil, gas, lead and other commodities.Various factors beyond our control affect the price of oil and gas, including, but not limited to, worldwide and domestic supplies of oil and gas, political instability or armed conflict in oil-producing regions, the price and level of foreign imports, the level of consumer demand, the price and availability of alternative fuels, domestic and foreign governmental regulation, weather-related factors and the overall economic environment. We purchase petroleum-related component parts for use in our manufacturing operations. In addition, our freight costs associated with shipping and receiving product and sales and service vehicle fuel costs are impacted by fluctuations in the cost of oil and gas.
Fluctuations in worldwide demand and other factors affect the price for lead, steel and related products. We do not maintain an inventory of raw or fabricated steel or batteries in excess of near-term production requirements. As a result, increases in the price of lead or steel can significantly increase the cost of our lead- and steel-based raw materials and component parts.
We continue to focus on mitigating the risk of future raw material or other product component cost increases through supplier negotiations, ongoing optimization of our supply chain, the continuation of cost reductioncost-reduction actions and product pricing. The success of these efforts will depend upon our ability to leverage our commodity spend in the current global economic environment. If the commodity prices increase significantly and we are not able to offset the increases with higher selling prices, our results may continue to be unfavorably impacted in 2018.
Foreign Currency Exchange Rate Risk
–Due to the global nature of our operations, we are subject to exposures resulting from foreign currency exchange fluctuations in the normal course of business. Our primary exchange rate exposures are with theIn the normal course of business, we actively manage the exposure of our foreign currency exchange rate market risk by entering into various hedging instruments with counterparties that are highly rated financial institutions. We may use foreign exchange purchased options or forward contracts to hedge our foreign currency denominated forecasted revenues or forecasted sales to wholly ownedwholly-owned foreign subsidiaries. Additionally, we hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts. We hedge these exposures to reduce the risk that our net earnings and cash flows will be adversely affected by changes in foreign exchange rates. We do not enter into any of these instruments for speculative or trading purposes to generate revenue.
These contracts are carried at fair value and have maturities between one and 12 months. The gains and losses on these contracts generally approximate changes in the value of the related assets, liabilities or forecasted transactions. Some of the derivative instruments we enter into do not meet the criteria for cash flow hedge accounting treatment; therefore, changes in fair value are recorded in Foreign Currency Transaction Losses on our Consolidated Statements of Operations.
We also use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between Tennantthe Company and its subsidiaries. During the second quarter of 2017, we entered into Euroeuro to U.S. dollar foreign exchange cross currencycross-currency swaps for all of the anticipated cash flows associated with an intercompany loan from a wholly-owned European subsidiary. We entered into these foreign exchange cross currencycross-currency swaps to hedge the foreign currency denominatedcurrency-denominated cash flows associated with this intercompany loan, and accordingly, they are not speculative in nature. We designated these cross currencycross-currency swaps as cash flow hedges. The hedged cash flows as of December 31, 2020 included €159.6 million of total notional value. As of December 31, 2020, the aggregate scheduled interest payments over the course of the loan and related swaps amounted to €9.6 million. The scheduled maturity and principal payment of the loan and related swaps of €150.0 million are due in April 2022.
For further information regarding our foreign currency derivatives and hedging programs, see Note 11 to the Consolidated Financial Statements.
| Notional Amount | Average Contracted Rate | Maximum Term (Months) | |||
| Derivatives designated as hedging instrument: | |||||
| Foreign currency option contracts: | |||||
| Canadian dollar | $ | 8,619 | 1.301 | 12 | |
| Foreign currency forward contracts: | |||||
| Euro | 207,076 | 1.168 | 51 | ||
| Canadian dollar | 2,928 | 1.264 | 3 | ||
| Derivatives not designated as hedging instruments: | |||||
| Foreign currency forward contracts: | |||||
| Australian dollar | $ | 3,061 | 1.287 | 6 | |
| Brazilian real | 4,862 | 3.329 | 1 | ||
| Canadian dollar | 6,612 | 1.263 | 8 | ||
| Euro | 38,068 | 0.831 | 11 | ||
| Mexican peso | 8,255 | 20.312 | 8 | ||
For details of the estimated effects of currency translation on the operations of our operating segments, see Part II, Item 7 – Management's"Management's Discussion and Analysis of Financial Condition and Results of Operations.
Other Matters
–Management regularly reviews our business operations with the objective of improving financial performance and maximizing our return on investment. As a result of this ongoing process to improve financial performance, we may incur additional restructuring charges in the future which, if taken, could be material to our financial results.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and boardthe Board of directors
Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheetssheet of Tennant Company and subsidiaries (the Company)"Company") as of December 31, 2017 and 2016,2020, the related consolidated statements of operations, comprehensive income, equity, and cash flows, and equity, for each of the years in the three-year periodyear ended December 31, 2017,2020, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as included in Item 15.A.2 (collectively, the consolidated financial statements)"financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting principles. Alsofirm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill – EMEA Reporting Unit - Refer to Notes 1, 5, 8 to the consolidated financial statements
Critical Audit Matter Description
The Company’s annual evaluation of goodwill for impairment involves the comparison of the fair value to its carrying value. The Company determined the fair value of the EMEA reporting unit using the combination of an income and a market approach. The income approach utilizes a discounted cash flow model which requires management to make significant estimates and assumptions related to forecasts of future revenues, profit margins, and discount rates. The determination of the fair value using the market approach requires management to make significant assumptions related to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples.
The EMEA goodwill balance was $169 million as of December 31, 2020. The fair value of the EMEA reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized. Changes in these estimates and related assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.
Given the significant judgments made by management to estimate the fair value of the EMEA reporting unit and the differences between its fair value and carrying value, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenues, profit margins, discount rates, and EBITDA multiples, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to forecasts of future revenues, reporting unit profit margins, selection of discount rates, and EBITDA multiples for the EMEA reporting unit included the following, among others:
● | We tested the effectiveness of controls over goodwill, including the underlying assumptions to forecast future revenue and profit margins, and the selection of the discount rate and EBITDA multiples. |
● | We evaluated management’s ability to accurately forecast future revenues and profit margins by comparing actual results to management’s historical forecasts. |
● | We evaluated the reasonableness of management’s forecasted revenue and profit margins by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases as well as in analyst and industry reports of the Company and companies in its peer group. |
● | With the assistance of our fair value specialists, we evaluated the discount rates, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management. |
● | With the assistance of our fair value specialists, we evaluated the EBITDA multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline companies. |
● | With the assistance of our fair value specialists, we compared the aggregated fair value estimates of the Company’s reporting units to the Company’s market capitalization and evaluated the implied control premium. |
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 25, 2021
We have served as the Company's auditor since 2019.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tennant Company.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tennant Company and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in
We have also audited, in accordance with the Committee of Sponsoring Organizationsstandards of the Treadway Commission.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Definition and Limitations of Internal Control Overover Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 25, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Tennant Company:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Tennant Company and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes and financial statement Schedule II – Valuation and Qualifying Accounts(collectively, the consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and related amendments.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company's auditor since 1954.
Minneapolis, Minnesota
February 27, 20182020
TENNANT COMPANY AND SUBSIDIARIES
(In thousands,millions, except shares and per share data)
Years ended December 31 | 2020 | 2019 | 2018 | |||||||||
Net Sales | $ | 1,001.0 | $ | 1,137.6 | $ | 1,123.5 | ||||||
Cost of Sales | 593.2 | 675.9 | 678.5 | |||||||||
Gross Profit | 407.8 | 461.7 | 445.0 | |||||||||
Operating Expense: | ||||||||||||
Research and Development Expense | 30.1 | 32.7 | 30.7 | |||||||||
Selling and Administrative Expense | 314.0 | 357.2 | 356.3 | |||||||||
Total Operating Expense | 344.1 | 389.9 | 387.0 | |||||||||
Profit from Operations | 63.7 | 71.8 | 58.0 | |||||||||
Other Income (Expense): | ||||||||||||
Interest Income | 3.3 | 3.3 | 3.0 | |||||||||
Interest Expense | (20.7 | ) | (21.1 | ) | (23.3 | ) | ||||||
Net Foreign Currency Transaction Losses | (5.3 | ) | (0.7 | ) | (1.1 | ) | ||||||
Other Income (Expense), Net | 0.1 | 0.7 | (0.8 | ) | ||||||||
Total Other Expense, Net | (22.6 | ) | (17.8 | ) | (22.2 | ) | ||||||
Profit Before Income Taxes | 41.1 | 54.0 | 35.8 | |||||||||
Income Tax Expense | 7.4 | 8.1 | 2.3 | |||||||||
Net Earnings Including Noncontrolling Interest | 33.7 | 45.9 | 33.5 | |||||||||
Net Earnings Attributable to Noncontrolling Interest | 0 | 0.1 | 0.1 | |||||||||
Net Earnings Attributable to Tennant Company | $ | 33.7 | $ | 45.8 | $ | 33.4 | ||||||
Net Earnings Attributable to Tennant Company per Share: | ||||||||||||
| Basic | $ | 1.84 | $ | 2.53 | $ | 1.86 | ||||||
| Diluted | $ | 1.81 | $ | 2.48 | $ | 1.82 | ||||||
Weighted Average Shares Outstanding: | ||||||||||||
| Basic | 18,349,724 | 18,118,486 | 17,940,438 | |||||||||
| Diluted | 18,635,002 | 18,453,145 | 18,338,569 | |||||||||
| Years ended December 31 | 2017 | 2016 | 2015 | ||||||||
| Net Sales | $ | 1,003,066 | $ | 808,572 | $ | 811,799 | |||||
| Cost of Sales | 598,645 | 456,977 | 462,739 | ||||||||
| Gross Profit | 404,421 | 351,595 | 349,060 | ||||||||
| Operating Expense: | |||||||||||
| Research and Development Expense | 32,013 | 34,738 | 32,415 | ||||||||
| Selling and Administrative Expense | 345,364 | 248,210 | 252,270 | ||||||||
| Impairment of Long-Lived Assets | — | — | 11,199 | ||||||||
| Loss on Sale of Business | — | 149 | — | ||||||||
| Total Operating Expense | 377,377 | 283,097 | 295,884 | ||||||||
| Profit from Operations | 27,044 | 68,498 | 53,176 | ||||||||
| Other Income (Expense): | |||||||||||
| Interest Income | 2,405 | 330 | 172 | ||||||||
| Interest Expense | (25,394 | ) | (1,279 | ) | (1,313 | ) | |||||
| Net Foreign Currency Transaction Losses | (3,387 | ) | (392 | ) | (954 | ) | |||||
| Other Expense, Net | (1,960 | ) | (666 | ) | (657 | ) | |||||
| Total Other Expense, Net | (28,336 | ) | (2,007 | ) | (2,752 | ) | |||||
| (Loss) Profit Before Income Taxes | (1,292 | ) | 66,491 | 50,424 | |||||||
| Income Tax Expense | 4,913 | 19,877 | 18,336 | ||||||||
| Net (Loss) Earnings Including Noncontrolling Interest | (6,205 | ) | 46,614 | 32,088 | |||||||
| Net Loss Attributable to Noncontrolling Interest | (10 | ) | — | — | |||||||
| Net (Loss) Earnings Attributable to Tennant Company | $ | (6,195 | ) | $ | 46,614 | $ | 32,088 | ||||
| Net (Loss) Earnings Attributable to Tennant Company per Share: | |||||||||||
| Basic | $ | (0.35 | ) | $ | 2.66 | $ | 1.78 | ||||
| Diluted | $ | (0.35 | ) | $ | 2.59 | $ | 1.74 | ||||
| Weighted Average Shares Outstanding: | |||||||||||
| Basic | 17,695,390 | 17,523,267 | 18,015,151 | ||||||||
| Diluted | 17,695,390 | 17,976,183 | 18,493,447 | ||||||||
| Cash Dividends Declared per Common Share | $ | 0.84 | $ | 0.81 | $ | 0.80 | |||||
See accompanying Notes to Consolidated Financial Statements.
TENNANT COMPANY AND SUBSIDIARIES
(In thousands)millions)
Years ended December 31 | 2020 | 2019 | 2018 | |||||||||
Net Earnings Including Noncontrolling Interest | $ | 33.7 | $ | 45.9 | $ | 33.5 | ||||||
Other Comprehensive Income (Loss): | ||||||||||||
Foreign currency translation adjustments | 16.4 | (4.5 | ) | (16.2 | ) | |||||||
Pension and postretirement medical benefits | (1.3 | ) | (0.5 | ) | 1.7 | |||||||
Cash flow hedge | 2.9 | 4.6 | 1.3 | |||||||||
Income Taxes: | ||||||||||||
Foreign currency translation adjustments | 0.8 | 0.1 | 0.2 | |||||||||
Pension and postretirement medical benefits | 0.3 | 0.1 | (0.5 | ) | ||||||||
Cash flow hedge | (0.7 | ) | (1.1 | ) | (1.4 | ) | ||||||
Total Other Comprehensive Income (Loss), net of tax | 18.4 | (1.3 | ) | (14.9 | ) | |||||||
Total Comprehensive Income Including Noncontrolling Interest | 52.1 | 44.6 | 18.6 | |||||||||
Comprehensive Income Attributable to Noncontrolling Interest | 0 | 0.1 | 0.1 | |||||||||
Comprehensive Income Attributable to Tennant Company | $ | 52.1 | $ | 44.5 | $ | 18.5 | ||||||
| Years ended December 31 | 2017 | 2016 | 2015 | ||||||||
| Net (Loss) Earnings Including Noncontrolling Interest | $ | (6,205 | ) | $ | 46,614 | $ | 32,088 | ||||
| Other Comprehensive Income (Loss): | |||||||||||
| Foreign currency translation adjustments | 28,356 | 109 | (12,520 | ) | |||||||
| Pension and retiree medical benefits | 5,868 | (2,248 | ) | 4,121 | |||||||
| Cash flow hedge | (7,731 | ) | (305 | ) | 164 | ||||||
| Income Taxes: | |||||||||||
| Foreign currency translation adjustments | 310 | 32 | 25 | ||||||||
| Pension and retiree medical benefits | (2,087 | ) | 504 | (1,265 | ) | ||||||
| Cash flow hedge | 2,884 | 114 | (61 | ) | |||||||
| Total Other Comprehensive Income (Loss), net of tax | 27,600 | (1,794 | ) | (9,536 | ) | ||||||
| Total Comprehensive Income Including Noncontrolling Interest | 21,395 | 44,820 | 22,552 | ||||||||
| Comprehensive Loss Attributable to Noncontrolling Interest | (10 | ) | — | — | |||||||
| Comprehensive Income Attributable to Tennant Company | $ | 21,405 | $ | 44,820 | $ | 22,552 | |||||
See accompanying Notes to Consolidated Financial Statements.
TENNANT COMPANY AND SUBSIDIARIES
(In thousands,millions, except shares and per share data)
December 31 | 2020 | 2019 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash, Cash Equivalents, and Restricted Cash | $ | 141.0 | $ | 74.6 | ||||
Receivables: | ||||||||
Trade, less Allowances of $4.6 and $3.6, respectively | 195.4 | 216.5 | ||||||
Other | 4.5 | 6.8 | ||||||
Net Receivables | 199.9 | 223.3 | ||||||
Inventories | 127.7 | 150.1 | ||||||
Prepaid and Other Current Assets | 25.0 | 33.0 | ||||||
Total Current Assets | 493.6 | 481.0 | ||||||
Property, Plant and Equipment | 437.5 | 412.5 | ||||||
Accumulated Depreciation | (252.0 | ) | (239.2 | ) | ||||
Property, Plant and Equipment, Net | 185.5 | 173.3 | ||||||
Operating Lease Assets | 44.5 | 46.6 | ||||||
Goodwill | 207.8 | 195.1 | ||||||
Intangible Assets, Net | 126.2 | 137.7 | ||||||
Other Assets | 25.0 | 29.2 | ||||||
Total Assets | $ | 1,082.6 | $ | 1,062.9 | ||||
LIABILITIES AND TOTAL EQUITY | ||||||||
Current Liabilities: | ||||||||
Current Portion of Long-Term Debt | $ | 10.9 | $ | 31.3 | ||||
Accounts Payable | 106.3 | 94.1 | ||||||
Employee Compensation and Benefits | 53.7 | 63.5 | ||||||
Other Current Liabilities | 83.4 | 86.0 | ||||||
Total Current Liabilities | 254.3 | 274.9 | ||||||
Long-Term Liabilities: | ||||||||
Long-Term Debt | 297.6 | 307.5 | ||||||
Long-Term Operating Lease Liability | 28.7 | 30.3 | ||||||
Employee-Related Benefits | 17.9 | 19.4 | ||||||
Deferred Income Taxes | 39.1 | 41.7 | ||||||
Other Liabilities | 38.9 | 27.8 | ||||||
Total Long-Term Liabilities | 422.2 | 426.7 | ||||||
Total Liabilities | 676.5 | 701.6 | ||||||
Commitments and Contingencies (Note 16) | ||||||||
Equity: | ||||||||
Common Stock, $0.375 par value per share, 60,000,000 shares authorized; 18,503,805 and 18,336,010 issued and outstanding, respectively | 6.9 | 6.9 | ||||||
Additional Paid-In Capital | 54.7 | 45.5 | ||||||
Retained Earnings | 363.3 | 346.0 | ||||||
Accumulated Other Comprehensive Loss | (20.1 | ) | (38.5 | ) | ||||
Total Tennant Company Shareholders' Equity | 404.8 | 359.9 | ||||||
Noncontrolling Interest | 1.3 | 1.4 | ||||||
Total Equity | 406.1 | 361.3 | ||||||
Total Liabilities and Total Equity | $ | 1,082.6 | $ | 1,062.9 | ||||
| December 31 | 2017 | 2016 | |||||
| ASSETS | |||||||
| Current Assets: | |||||||
| Cash and Cash Equivalents | $ | 58,398 | $ | 58,033 | |||
| Restricted Cash | 653 | 517 | |||||
| Receivables: | |||||||
| Trade, less Allowances of $3,241 and $3,108, respectively | 203,280 | 145,299 | |||||
| Other | 6,236 | 3,835 | |||||
| Net Receivables | 209,516 | 149,134 | |||||
| Inventories | 127,694 | 78,622 | |||||
| Prepaid Expenses | 19,351 | 9,204 | |||||
| Other Current Assets | 7,503 | 2,412 | |||||
| Total Current Assets | 423,115 | 297,922 | |||||
| Property, Plant and Equipment | 382,768 | 298,500 | |||||
| Accumulated Depreciation | (202,750 | ) | (186,403 | ) | |||
| Property, Plant and Equipment, Net | 180,018 | 112,097 | |||||
| Deferred Income Taxes | 11,134 | 13,439 | |||||
| Goodwill | 186,044 | 21,065 | |||||
| Intangible Assets, Net | 172,347 | 6,460 | |||||
| Other Assets | 21,319 | 19,054 | |||||
| Total Assets | $ | 993,977 | $ | 470,037 | |||
| LIABILITIES AND TOTAL EQUITY | |||||||
| Current Liabilities: | |||||||
| Current Portion of Long-Term Debt | $ | 30,883 | $ | 3,459 | |||
| Accounts Payable | 96,082 | 47,408 | |||||
| Employee Compensation and Benefits | 37,257 | 35,997 | |||||
| Income Taxes Payable | 2,838 | 2,348 | |||||
| Other Current Liabilities | 69,447 | 43,617 | |||||
| Total Current Liabilities | 236,507 | 132,829 | |||||
| Long-Term Liabilities: | |||||||
| Long-Term Debt | 345,956 | 32,735 | |||||
| Employee-Related Benefits | 23,867 | 21,134 | |||||
| Deferred Income Taxes | 53,225 | 171 | |||||
| Other Liabilities | 35,948 | 4,625 | |||||
| Total Long-Term Liabilities | 458,996 | 58,665 | |||||
| Total Liabilities | 695,503 | 191,494 | |||||
| Commitments and Contingencies (Note 15) | |||||||
| Equity: | |||||||
| Common Stock, $0.375 par value per share, 60,000,000 shares authorized; 17,881,177 and 17,688,350 issued and outstanding, respectively | 6,705 | 6,633 | |||||
| Additional Paid-In Capital | 15,089 | 3,653 | |||||
| Retained Earnings | 297,032 | 318,180 | |||||
| Accumulated Other Comprehensive Loss | (22,323 | ) | (49,923 | ) | |||
| Total Tennant Company Shareholders' Equity | 296,503 | 278,543 | |||||
| Noncontrolling Interest | 1,971 | — | |||||
| Total Equity | 298,474 | 278,543 | |||||
| Total Liabilities and Total Equity | $ | 993,977 | $ | 470,037 | |||
See accompanying Notes to Consolidated Financial Statements.
TENNANT COMPANY AND SUBSIDIARIES
(In thousands)millions)
Years ended December 31 | 2020 | 2019 | 2018 | |||||||||
OPERATING ACTIVITIES | ||||||||||||
Net Earnings Including Noncontrolling Interest | $ | 33.7 | $ | 45.9 | $ | 33.5 | ||||||
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: | ||||||||||||
Depreciation | 32.6 | 32.2 | 32.3 | |||||||||
Amortization of Intangible Assets | 20.8 | 22.2 | 22.1 | |||||||||
Amortization of Debt Issuance Costs | 1.4 | 1.3 | 2.4 | |||||||||
Fair Value Step-Up Adjustment to Acquired Inventory | 0 | 0.9 | 0 | |||||||||
Deferred Income Taxes | (4.0 | ) | (9.6 | ) | (10.9 | ) | ||||||
Share-Based Compensation Expense | 6.0 | 11.4 | 8.3 | |||||||||
Allowance for Doubtful Accounts and Returns | 2.0 | 2.5 | 0.8 | |||||||||
Acquisition Contingent Consideration Adjustment | (0.4 | ) | (2.3 | ) | 0 | |||||||
Note Receivable Write-down | 0 | 2.7 | 0 | |||||||||
Other, Net | 1.2 | 1.1 | (0.4 | ) | ||||||||
Changes in Operating Assets and Liabilities, Net of Assets Acquired: | ||||||||||||
Receivables, Net | 26.0 | (8.5 | ) | (7.6 | ) | |||||||
Inventories | 18.3 | (17.8 | ) | (16.6 | ) | |||||||
Accounts Payable | 8.5 | (7.5 | ) | 4.6 | ||||||||
Employee Compensation and Benefits | (10.0 | ) | 4.5 | 12.7 | ||||||||
Other Current Liabilities | (2.8 | ) | (1.4 | ) | (0.7 | ) | ||||||
Other Assets and Liabilities | 0.5 | (5.7 | ) | (0.5 | ) | |||||||
Net Cash Provided by Operating Activities | 133.8 | 71.9 | 80.0 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Purchases of Property, Plant and Equipment | (29.9 | ) | (38.4 | ) | (18.8 | ) | ||||||
Proceeds from Disposals of Property, Plant and Equipment | 0.1 | 0.1 | 0.1 | |||||||||
Proceeds from Principal Payments Received on Long-Term Note Receivable | 0 | 2.9 | 1.4 | |||||||||
Acquisitions of Businesses, Net of Cash, Cash Equivalents and Restricted Cash Acquired | 0 | (19.7 | ) | 0 | ||||||||
Purchase of Intangible Asset | (0.1 | ) | (0.5 | ) | (2.8 | ) | ||||||
Proceeds from Sale of Business | 0 | 0 | 4.0 | |||||||||
Net Cash Used in Investing Activities | (29.9 | ) | (55.6 | ) | (16.1 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from Credit Facility Borrowings | 126.4 | 25.0 | 14.9 | |||||||||
Repayments of Debt | (157.5 | ) | (41.8 | ) | (38.3 | ) | ||||||
Change in Finance Lease Obligations | (0.2 | ) | (0.2 | ) | 0 | |||||||
Proceeds from Issuances of Common Stock | 4.9 | 6.1 | 5.9 | |||||||||
Purchase of Noncontrolling Owner Interest | (0.1 | ) | (0.5 | ) | 0 | |||||||
Dividends Paid | (16.3 | ) | (16.0 | ) | (15.3 | ) | ||||||
Net Cash Used in Financing Activities | (42.8 | ) | (27.4 | ) | (32.8 | ) | ||||||
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | 5.3 | (0.4 | ) | (4.0 | ) | |||||||
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 66.4 | (11.5 | ) | 27.1 | ||||||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Year | 74.6 | 86.1 | 59.0 | |||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | $ | 141.0 | $ | 74.6 | $ | 86.1 | ||||||
| Years ended December 31 | 2017 | 2016 | 2015 | ||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net (Loss) Earnings Including Noncontrolling Interest | $ | (6,205 | ) | $ | 46,614 | $ | 32,088 | ||||
| Adjustments to Reconcile Net (Loss) Earnings to Net Cash Provided by Operating Activities: | |||||||||||
| Depreciation | 26,199 | 17,891 | 16,550 | ||||||||
| Amortization of Intangible Assets | 17,054 | 409 | 1,481 | ||||||||
| Amortization of Debt Issuance Costs | 1,779 | — | — | ||||||||
| Debt Issuance Cost Charges Related to Short-Term Financing | 6,200 | — | — | ||||||||
| Fair Value Step-Up Adjustment to Acquired Inventory | 7,245 | — | — | ||||||||
| Impairment of Long-Lived Assets | — | — | 11,199 | ||||||||
| Deferred Income Taxes | (6,095 | ) | (1,172 | ) | (1,129 | ) | |||||
| Share-Based Compensation Expense | 5,891 | 3,875 | 8,222 | ||||||||
| Allowance for Doubtful Accounts and Returns | 1,602 | 468 | 1,089 | ||||||||
| Loss on Sale of Business | — | 149 | — | ||||||||
| Other, Net | 364 | (345 | ) | (100 | ) | ||||||
| Changes in Operating Assets and Liabilities, Net of Assets Acquired: | |||||||||||
| Receivables, Net | (14,381 | ) | (9,278 | ) | 4,547 | ||||||
| Inventories | (2,898 | ) | 23 | (10,190 | ) | ||||||
| Accounts Payable | 10,849 | (3,904 | ) | (10,455 | ) | ||||||
| Employee Compensation and Benefits | (7,780 | ) | 124 | 716 | |||||||
| Other Current Liabilities | 14,560 | (185 | ) | (402 | ) | ||||||
| Income Taxes | 285 | 5,427 | (4,283 | ) | |||||||
| Other Assets and Liabilities | (495 | ) | (2,218 | ) | (4,101 | ) | |||||
| Net Cash Provided by Operating Activities | 54,174 | 57,878 | 45,232 | ||||||||
| INVESTING ACTIVITIES | |||||||||||
| Purchases of Property, Plant and Equipment | (20,437 | ) | (26,526 | ) | (24,780 | ) | |||||
| Proceeds from Disposals of Property, Plant and Equipment | 2,511 | 615 | 336 | ||||||||
| Proceeds from Principal Payments Received on Long-Term Note Receivable | 667 | — | — | ||||||||
| Issuance of Long-Term Note Receivable | (1,500 | ) | (2,000 | ) | — | ||||||
| Acquisitions of Businesses, Net of Cash Acquired | (354,073 | ) | (12,933 | ) | — | ||||||
| Purchase of Intangible Asset | (2,500 | ) | — | — | |||||||
| Proceeds from Sale of Business | — | 285 | 1,185 | ||||||||
| (Increase) Decrease in Restricted Cash | (92 | ) | 116 | (322 | ) | ||||||
| Net Cash Used in Investing Activities | (375,424 | ) | (40,443 | ) | (23,581 | ) | |||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from Short-Term Debt | 303,000 | — | — | ||||||||
| Repayments of Short-Term Debt | (303,000 | ) | — | — | |||||||
| Proceeds from Issuance of Long-Term Debt | 440,000 | 15,000 | — | ||||||||
| Payments of Long-Term Debt | (96,248 | ) | (3,460 | ) | (3,445 | ) | |||||
| Payments of Debt Issuance Costs | (16,482 | ) | — | — | |||||||
| Change in Capital Lease Obligations | 311 | — | — | ||||||||
| Purchases of Common Stock | — | (12,762 | ) | (45,998 | ) | ||||||
| Proceeds from Issuances of Common Stock | 6,875 | 5,271 | 1,677 | ||||||||
| Excess Tax Benefit on Stock Plans | — | 686 | 859 | ||||||||
| Purchase of Noncontrolling Owner Interest | (30 | ) | — | — | |||||||
| Dividends Paid | (14,953 | ) | (14,293 | ) | (14,498 | ) | |||||
| Net Cash Provided by (Used in) Financing Activities | 319,473 | (9,558 | ) | (61,405 | ) | ||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 2,142 | (1,144 | ) | (1,908 | ) | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 365 | 6,733 | (41,662 | ) | |||||||
| Cash and Cash Equivalents at Beginning of Year | 58,033 | 51,300 | 92,962 | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 58,398 | $ | 58,033 | $ | 51,300 | |||||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||
Years ended December 31 | 2020 | 2019 | 2018 | |||||||||
Cash Paid for: | ||||||||||||
Income Taxes | $ | 12.0 | $ | 21.7 | $ | 11.1 | ||||||
Interest | $ | 18.3 | $ | 19.7 | $ | 22.4 | ||||||
Supplemental Non-Cash Investing and Financing Activities: | ||||||||||||
Capital Expenditures in Accounts Payable | $ | 3.8 | $ | 3.9 | $ | 2.3 | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | |||||||||||
| Cash Paid During the Year for: | |||||||||||
| Income Taxes | $ | 13,542 | $ | 14,172 | $ | 23,421 | |||||
| Interest | $ | 14,228 | $ | 1,135 | $ | 1,167 | |||||
| Supplemental Non-Cash Investing and Financing Activities: | |||||||||||
| Long-Term Note Receivable from Sale of Business | $ | — | $ | 5,489 | $ | — | |||||
| Capital Expenditures in Accounts Payable | $ | 2,167 | $ | 2,045 | $ | 1,830 | |||||
See accompanying Notes to Consolidated Financial Statements.
TENNANT COMPANY AND SUBSIDIARIES
(In thousands,millions, except shares and per share data)
Tennant Company Shareholders | ||||||||||||||||||||||||||||||||
Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Tennant Company Shareholders' Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||
Balance, December 31, 2017 | 17,881,177 | $ | 6.7 | $ | 15.1 | $ | 297.0 | $ | (22.3 | ) | $ | 296.5 | $ | 2.0 | $ | 298.5 | ||||||||||||||||
Net Earnings | — | 0 | 0 | 33.4 | 0 | 33.4 | 0.1 | 33.5 | ||||||||||||||||||||||||
Other Comprehensive Loss | — | 0 | 0 | 0 | (14.9 | ) | (14.9 | ) | 0 | (14.9 | ) | |||||||||||||||||||||
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 9,598 shares | 244,024 | 0.1 | 5.1 | 0 | 0 | 5.2 | 0 | 5.2 | ||||||||||||||||||||||||
Share-Based Compensation | — | 0 | 8.3 | 0 | 0 | 8.3 | 0 | 8.3 | ||||||||||||||||||||||||
Dividends paid $0.85 per Common Share | — | 0 | 0 | (15.3 | ) | 0 | (15.3 | ) | 0 | (15.3 | ) | |||||||||||||||||||||
Recognition of Noncontrolling Interests | — | 0 | 0 | 0 | 0 | 0 | (0.2 | ) | (0.2 | ) | ||||||||||||||||||||||
Adjustments to beginning Retained Earnings resulting from newly adopted accounting pronouncements | — | 0 | 0 | 1.2 | 0 | 1.2 | 0 | 1.2 | ||||||||||||||||||||||||
Balance, December 31, 2018 | 18,125,201 | $ | 6.8 | $ | 28.5 | $ | 316.3 | $ | (37.2 | ) | $ | 314.4 | $ | 1.9 | $ | 316.3 | ||||||||||||||||
Net Earnings | — | 0 | 0 | 45.8 | 0 | 45.8 | 0.1 | 45.9 | ||||||||||||||||||||||||
Other Comprehensive Loss | — | 0 | 0 | 0 | (1.3 | ) | (1.3 | ) | 0 | (1.3 | ) | |||||||||||||||||||||
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 12,198 shares | 210,809 | 0.1 | 5.1 | 0 | 0 | 5.2 | 0 | 5.2 | ||||||||||||||||||||||||
Share-Based Compensation | — | 0 | 11.4 | 0 | 0 | 11.4 | 0 | 11.4 | ||||||||||||||||||||||||
Dividends paid $0.88 per Common Share | — | 0 | 0 | (16.0 | ) | 0 | (16.0 | ) | 0 | (16.0 | ) | |||||||||||||||||||||
Purchase of Noncontrolling Interests | — | 0 | 0.5 | 0 | 0 | 0.5 | (0.5 | ) | 0 | |||||||||||||||||||||||
| Other | — | 0 | 0 | (0.1 | ) | 0 | (0.1 | ) | (0.1 | ) | (0.2 | ) | ||||||||||||||||||||
Balance, December 31, 2019 | 18,336,010 | $ | 6.9 | $ | 45.5 | $ | 346.0 | $ | (38.5 | ) | $ | 359.9 | $ | 1.4 | $ | 361.3 | ||||||||||||||||
Net Earnings | — | 0 | 0 | 33.7 | 0 | 33.7 | 0 | 33.7 | ||||||||||||||||||||||||
Other Comprehensive Income | — | 0 | 0 | 0 | 18.4 | 18.4 | 0 | 18.4 | ||||||||||||||||||||||||
Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 20,494 shares | 167,795 | 0 | 3.3 | 0 | 0 | 3.3 | 0 | 3.3 | ||||||||||||||||||||||||
Share-Based Compensation | — | 0 | 6.0 | 0 | 0 | 6.0 | 0 | 6.0 | ||||||||||||||||||||||||
Dividends paid $0.89 per Common Share | — | 0 | 0 | (16.3 | ) | 0 | (16.3 | ) | 0 | (16.3 | ) | |||||||||||||||||||||
Purchase of Noncontrolling Interests | — | 0 | (0.1 | ) | 0 | 0 | (0.1 | ) | 0 | (0.1 | ) | |||||||||||||||||||||
Other | — | 0 | 0 | (0.1 | ) | 0 | (0.1 | ) | (0.1 | ) | (0.2 | ) | ||||||||||||||||||||
Balance, December 31, 2020 | 18,503,805 | $ | 6.9 | $ | 54.7 | $ | 363.3 | $ | (20.1 | ) | $ | 404.8 | $ | 1.3 | $ | 406.1 | ||||||||||||||||
| Tennant Company Shareholders | |||||||||||||||||||||||
| Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Tennant Company Shareholders' Equity | Noncontrolling Interest | Total Equity | ||||||||||||||||
| Balance, December 31, 2014 | 18,415,047 | $ | 6,906 | $ | 26,247 | $ | 286,091 | $ | (38,593 | ) | $ | 280,651 | $ | — | $ | 280,651 | |||||||
| Net Earnings | — | — | — | 32,088 | — | 32,088 | — | 32,088 | |||||||||||||||
| Other Comprehensive Loss | — | — | — | — | (9,536 | ) | (9,536 | ) | — | (9,536 | ) | ||||||||||||
| Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 23,160 shares | 93,380 | 35 | 384 | — | — | 419 | — | 419 | |||||||||||||||
| Share-Based Compensation | — | — | 8,222 | — | — | 8,222 | — | 8,222 | |||||||||||||||
| Dividends paid $0.80 per Common Share | — | — | — | (14,498 | ) | — | (14,498 | ) | — | (14,498 | ) | ||||||||||||
| Tax Benefit on Stock Plans | — | — | 859 | — | — | 859 | — | 859 | |||||||||||||||
| Purchases of Common Stock | (764,046 | ) | (287 | ) | (35,712 | ) | (9,999 | ) | — | (45,998 | ) | — | (45,998 | ) | |||||||||
| Balance, December 31, 2015 | 17,744,381 | $ | 6,654 | $ | — | $ | 293,682 | $ | (48,129 | ) | $ | 252,207 | $ | — | $ | 252,207 | |||||||
| Net Earnings | — | — | — | 46,614 | — | 46,614 | — | 46,614 | |||||||||||||||
| Other Comprehensive Loss | — | — | — | — | (1,794 | ) | (1,794 | ) | — | (1,794 | ) | ||||||||||||
| Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 23,113 shares | 190,443 | 71 | 3,939 | — | — | 4,010 | — | 4,010 | |||||||||||||||
| Share-Based Compensation | — | — | 3,875 | — | — | 3,875 | — | 3,875 | |||||||||||||||
| Dividends paid $0.81 per Common Share | — | — | — | (14,293 | ) | — | (14,293 | ) | — | (14,293 | ) | ||||||||||||
| Tax Benefit on Stock Plans | — | — | 686 | — | — | 686 | — | 686 | |||||||||||||||
| Purchases of Common Stock | (246,474 | ) | (92 | ) | (4,847 | ) | (7,823 | ) | — | (12,762 | ) | — | (12,762 | ) | |||||||||
| Balance, December 31, 2016 | 17,688,350 | $ | 6,633 | $ | 3,653 | $ | 318,180 | $ | (49,923 | ) | $ | 278,543 | $ | — | $ | 278,543 | |||||||
| Net Loss | — | — | — | (6,195 | ) | — | (6,195 | ) | (10 | ) | (6,205 | ) | |||||||||||
| Other Comprehensive Income | — | — | — | — | 27,600 | 27,600 | — | 27,600 | |||||||||||||||
| Issue Stock for Directors, Employee Benefit and Stock Plans, net of related tax withholdings of 16,990 shares | 192,827 | 72 | 5,545 | — | — | 5,617 | — | 5,617 | |||||||||||||||
| Share-Based Compensation | — | — | 5,891 | — | — | 5,891 | — | 5,891 | |||||||||||||||
| Dividends paid $0.84 per Common Share | — | — | — | (14,953 | ) | — | (14,953 | ) | — | (14,953 | ) | ||||||||||||
| Recognition of Noncontrolling Interests | — | — | — | — | — | — | 2,028 | 2,028 | |||||||||||||||
| Purchase of Noncontrolling Shareholder Interest | — | — | — | — | — | — | (30 | ) | (30 | ) | |||||||||||||
| Other | — | — | — | — | — | — | (17 | ) | (17 | ) | |||||||||||||
| Balance, December 31, 2017 | 17,881,177 | $ | 6,705 | $ | 15,089 | $ | 297,032 | $ | (22,323 | ) | $ | 296,503 | $ | 1,971 | $ | 298,474 | |||||||
See accompanying Notes to Consolidated Financial Statements.
(In thousands,Tables in millions, except shares and per share data)
1. | Summary of Significant Accounting Policies |
Nature of Operations
–Reclassification –We reclassified $5.0 million of costs from Selling and Administrative Expense to Cost of Sales in the Company completed its acquisitionConsolidated Statement of Operations for the IPC Group business. IPC manufactures a complete rangeyear ended December 31, 2020 as part of commercial cleaning products including mechanized cleaning equipment, wet & dry vacuum cleaners, cleaning tools & carts and high pressure washers. These products are sold into similar vertical market applications as those listed above, but also into office cleaning and hospitality vertical markets through a global direct sales and service organization and networkalignment of distributors. IPC markets products and services under the following valued brands: IPC, Gansow, Vaclensa, Portotecnica, Soteco and private-label brands.
Consolidation
– The Consolidated Financial Statements include the accounts ofTranslation of Non-U.S. Currency
– Foreign currency-denominated assets and liabilities have been translated to U.S. dollars at year-end exchange rates, while income and expense items are translated at average exchange rates prevailing during the year. Gains or losses resulting from translation are included as a separate component of Accumulated Other Comprehensive Loss. The balance of cumulative foreign currency translation adjustments recorded within Accumulated Other Comprehensive Loss as of December 31,Use of Estimates
– In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"), management must make decisions that impact the reported amounts of assets, liabilities, revenues, expenses and the related disclosures, including disclosures of contingent assets and liabilities. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Estimates are used in determining, among other items, sales promotions and incentives accruals, inventory valuation, warranty reserves, allowance for doubtful accounts, pension and postretirement accruals, useful lives for intangible assets, and future cash flows associated with impairment testing forCash and Cash Equivalents
– We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents.Restricted Cash
– We have a total ofReceivables
– Credit is granted to our customers in the normal course of business. Receivables are recorded at original carrying value less reserves for estimated uncollectible accounts and sales returns. To assess the collectability of these receivables, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information becomes available.Our reserves are also based on amounts determined by using percentages applied to trade receivables. These percentages are determinedreceivables, using a loss rate method. We considered the following in determining the expected loss rate: (1) historical loss rate, (2) macroeconomic factors, and (3) creditworthiness of customers. The historical loss rate is calculated by taking the yearly write-off expense, net of collections, as a varietypercentage of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience.the annual average balance of trade receivables for each of the past three years. An account is considered past-due or delinquent when it has not been paid within the contractual terms. Uncollectible accounts are written off against the reserves when it is deemed that a customer account is uncollectible.
Inventories
– Inventories are valued at the lower of cost or net realizable value. Cost is determined on aProperty, Plant and Equipment
– Property, plant and equipment is carried at cost. Additions and improvements that extend the lives of the assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. We generally depreciate buildings and improvements by the straight-line method over a life of 30 years. Other property, plant and equipment are generally depreciated using the straight-line method based on lives of 3 years to 15 years.(In thousands,Tables in millions, except shares and per share data)
Leases – InvestmentsWe assess whether an arrangement is a lease at inception.
Operating leases with an initial term of 12 months or less are expensed as incurred as short-term lease cost. We have elected the practical expedient to not separate lease and non-lease components for all asset classes. Operating lease assets and operating lease liabilities are calculated based on the present value of the future lease payments over the lease term at the lease commencement date. When future lease payments are based on an index or rate, operating lease assets and operating lease liabilities are calculated using the prevailing index or rate at the lease commencement date. As the implicit rate is not readily determinable, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments. Information used in determining the incremental borrowing rates for the Company's leases includes: (1) the market yield on the Company's traded bond, adjusted for the presence of collateral and the difference in terms of the bond and the leases, (2) consideration of the currency in which each lease was denominated, and (3) the lease term. The operating lease asset is increased by any lease payments made at or before the lease start date, increased by initial direct costs incurred, and reduced by lease incentives. The lease term includes options to renew or terminate the lease when it is reasonably certain that we havewill exercise that option. The exercise of lease renewal options is at our sole discretion. The useful life of lease assets and leasehold improvements are limited by the abilitylease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain leases also include options to exercise significant influence, but do not control,purchase the leased asset. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Certain leases contain variable lease payments for items such as index-based changes in rent, fuel and common area maintenance, which we expense as incurred as variable lease cost.
Finance leases are accounted for under the equity method of accounting andnot material to our Consolidated Financial Statements.
Further details regarding leases are included in Other Assets on the Consolidated Balance Sheets. Under this method of accounting, our share of the net earnings or losses of the investee are presented as a component of Other Expense, Net on the Consolidated Statements of Operations. The detail regarding our equity method investment in i-team North America B.V., a joint venture that operates as the distributor of the i-mop in North America, are further describeddiscussed in Note 3.
Goodwill
– Goodwill represents the excess of cost over the fair value of net assets of businessesIn 2020, we elected to perform the quantitative test, which indicated that there was 0 goodwill impairment test.
Intangible Assets
– Intangible Assets consist of definite lived customer lists, trade names and technology. Generally, intangible assets classified as trade names are amortized on a straight-line basis and intangible assets classified as customer lists or technology are amortized using an accelerated method of amortization.Impairment of Long-lived Assets and Assets Held for Sale
– We periodically review our intangible and long-lived assets for impairment and assess whether events or circumstances indicate that the carrying amount of the assets may not be recoverable. We generally deem an asset group to be impaired if an estimate of undiscounted future operating cash flows is less than its carrying amount. If impaired, an impairment loss is recognized based on the excess of the carrying amount of the individual asset group over its fair value.Assets held for sale are measured at the lower of their carrying value or fair value less costs to sell. Upon retirement or disposition, the asset cost and related accumulated depreciation or amortization are removed from the accounts and a gain or loss is recognized based on the difference between the fair value of proceeds received and carrying value of the assets held for sale. In fiscal 2015, we adopted a plan to sell assets and liabilities of our Green Machines™ outdoor city cleaning line as a result of determining that the product line does not sufficiently complement our core business. The long-lived assets involved were tested for recoverability in 2015; accordingly, a pre-tax impairment loss of $11,199 was recognized, which represents the amount by which the carrying values of the assets exceeded their fair value less costs to sell. The impairment charge is included in the caption "Impairment of Long-Lived Assets" in the accompanying Consolidated Statements of Operations.
Purchase of Common Stock
– We repurchase our Common Stock under 2016 and 2015 repurchase programs authorized by our Board of Directors. These programs allow us to repurchase up to an aggregate ofWarranty
– We record a liability for estimated warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. In the event we determine that our current or future product repair and replacement costs exceed our estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made. Warranty terms on machines range from one to four years. However, the majority of our claims are paid out within the firstsix to nine months following a sale. The majority of the liability for estimated warranty claims represents amounts to be paid out in the near term for qualified warranty issues, with immaterial amounts reserved to be paid out for older equipment warranty issues.Debt Issuance Costs
– We record all applicable debt issuance costs related to a recognized debt liability in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt liability, if not a line-of-credit arrangement. All debt issuance costs related to line-of-credit arrangements are recorded as part of Other Assets in the Consolidated BalanceEnvironmental
– We record a liability for environmental clean-up on an undiscounted basis when a loss is probable and can be reasonably estimated.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Pension and Profit Sharing Plans – Substantially all U.S. employees are covered by various retirement benefit plans, including postretirement medical plans and defined contribution savings plans. Pension plan costsRetirement benefits for eligible employees in foreign locations are accrued based on actuarial estimates with the required pension cost funded annually, as needed. No new participants have entered theprincipally through defined benefit pension plan since 2000.plans, annuity or government programs. For further details regarding our pension and profit sharingretirement benefit plans, see Note 13.
Postretirement Benefits
– We accrue and recognize the cost of retiree health benefits over the employees’ period of service based on actuarial estimates. Benefits are only available for U.S. employees hired before January 1, 1999.Derivative Financial Instruments
– In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. We hedge our net recognized foreignWe account for our foreign currency hedging instruments as either assets or liabilities on the balance sheet and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. Gains and losses from foreign exchange forward contracts that hedge certain balance sheet positions are recorded each period to Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations. Foreign exchange option contracts or forward contracts hedging forecasted foreign currency revenue are designated as cash flow hedges under accounting for derivative instruments and hedging activities, with gains and losses recorded each period to Accumulated Other Comprehensive Loss in our Consolidated Balance Sheets, until the forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge to Net Sales. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from Accumulated Other Comprehensive Loss to Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations at that time. If we do not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations. See Note 11 for additional information regarding our hedging activities.
Revenue Recognition
– Revenue is recognized when control transfers under the terms of the contract with our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. WeIn general, we transfer control and collectability is reasonably assured. Generally, these criteria are metrecognize a sale at the point in time the product is shipped. Provisions for estimated returns, rebateswhen products are shipped from our manufacturing facilities both direct to consumers and discounts are provided for at the time the related revenue is recognized. Freight revenue billed to customers is included in Net Sales and the related shipping expense is included in Cost of Sales.distributors. Service revenue is recognized in the period the service is performed or ratably over the period of the related service contract.
For contracts with multiple performance obligations (i.e., a product and service component), we allocate the transaction price to the performance obligations in proportion to their stand-alone selling prices. We use an observable price to determine the stand-alone selling price for separate performance obligations. When allocating on a relative stand-alone selling price basis, any discounts contained within the contract are allocated proportionately to all of the performance obligations in the contract.
We generally expense the incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs relate primarily to sales commissions and are recorded in Selling and Administrative Expense in the Consolidated Statements of Operations.
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. In May 2014,addition, we do not adjust the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
We adopted ASU No. 2014-09,
Share-based Compensation
– We account for employee share-based compensation using the fair value based method. Our share-based compensation plans are more fully described in NoteResearch and Development
– Research and development costs are expensed as incurred.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Advertising Costs –We advertise products, technologies and solutions to customers and prospective customers through a variety of marketing campaign and promotional efforts. These efforts include tradeshows, online advertising, e-mail marketing, mailings, sponsorships and telemarketing. Advertising costs are expensed as incurred. In 20172020, 20162019 and 20152018, such activities amounted to $8,228, $7,269$5.0 million, $8.2 million and $7,418,$8.8 million, respectively.
Income Taxes
– Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the book and tax bases of existing assets and liabilities. A valuation allowance is provided when, in management’s judgment, it is more likely than not that some portion or all of the deferred tax asset will not be realized. We have establishedEarnings per Share
– BasicNew Accounting Pronouncements
–InIn March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) No.2020-04,Reference Rate Reform (Topic 848). This ASU provides optional expedients to applying generally accepted accounting principles to certain contract modifications, hedging relationships, and other transactions affected by the reference rate reform, which affects the London Inter-bank Offered Rate, if certain criteria are met. The amendments are effective March 12, 2020 through December 31, 2022. We are evaluating whether to apply any of the expedients and/or exceptions.
Further details regarding the adoption of new accounting standards are discussed in Note 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
2. | Newly Adopted Accounting Pronouncements |
Defined Benefit Plans
In December 2020, we adopted ASU No.2018-14, Compensation-Retirement Benefits- Defined Benefit Plans-General (Subtopic 715-20):Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans which updates disclosure requirements for defined benefit pension and other postretirement plans. Adoption of this ASU did not have a material impact on our consolidated financial statements.
Financial Instruments
On January 1, 2020, we adopted ASU No.2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and all related amendments. This ASU improves financial reporting periodby requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. Under the new guidance, the ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. We evaluated the impact of this amended guidance on our consolidated financial statements and related disclosures and concluded that it is immaterial.
We estimate an allowance for doubtful accounts using a loss rate method. We considered the following in which they occur. Additionally, determining the expected loss rate: (1) historical loss rate, (2) macroeconomic factors, and (3) creditworthiness of customers.
The historical loss rate is calculated by taking the yearly write-off expense, net of collections, as a percentage of the annual average balance of trade receivables for each of the past three years.
A reconciliation of the beginning and ending balance of the allowance for doubtful accounts for the years ended December 31 is as follows:
| 2020 | 2019 | 2018 | |||||||||
Balance at beginning of year | $ | 3.6 | $ | 2.5 | $ | 2.4 | ||||||
Charged to costs and expenses | 2.2 | 2.5 | 0.4 | |||||||||
Reclassification(1) | 0 | 0.5 | 0.8 | |||||||||
Charged to other accounts(2) | 0 | 0 | (0.2 | ) | ||||||||
Deductions(3) | (1.2 | ) | (1.9 | ) | (0.9 | ) | ||||||
Balance at end of year | $ | 4.6 | $ | 3.6 | $ | 2.5 | ||||||
(1) | Includes amount reclassified between Allowance for Doubtful Accounts and Other Receivables related to a customer's open receivables balance for proper classification and acquisition-related adjustments. |
(2) | Primarily includes impact from foreign currency fluctuations. |
(3) | Includes accounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves. |
Leases
On January 1, 2019, we present excess tax benefits along with other income tax cash flowsadopted ASU No.2016-02, Leases (Topic 842). This ASU requires lessees to recognize operating lease assets and operating lease liabilities on the balance sheet. Under the new guidance, lessor accounting is largely unchanged.
We have elected to adopt the standard on the modified retrospective basis. We have also elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will not recognize operating lease related assets or liabilities for leases with a lease term less than one year. We have also elected the practical expedient to not separate lease and non-lease components for our asset classes. We did not elect the hindsight practical expedient to determine the reasonably certain term of existing leases.
The impact of adopting the new lease standard was the recognition of $44.8 million of lease assets and lease liabilities related to our operating leases. The adoption of the new lease standard had no impact to our Consolidated Statements of Earnings, Consolidated Statements of Cash Flows as an operating activity rather than, as previously required, a financing activity. For further details regarding the implementationor Consolidated Statements of this ASU and the impact on our financial statements, see Note 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
3. | Revenue | |
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the FASB issued ASU 2016-09,
We also enter into contracts that can include combinations of products and services, which amends Accounting Standards Codification ("ASC")
Further information on revenue recognition is described in Note 1.
Disaggregation of Revenue
The following tables illustrate the accountingdisaggregation of revenue by geographic area, groups of similar products and services and sales channels for share-based payment transaction, including the income tax consequences, classification of awards as either equity or liabilities and classificationyears ended December 31 (in millions):
Net Sales by geographic area
2020 | 2019 | 2018 | ||||||||||
Americas | $ | 631.0 | $ | 722.4 | $ | 691.0 | ||||||
Europe, Middle East and Africa | 278.2 | 307.6 | 335.6 | |||||||||
Asia Pacific | 91.8 | 107.6 | 96.9 | |||||||||
Total | $ | 1,001.0 | $ | 1,137.6 | $ | 1,123.5 | ||||||
Net Sales are attributed to each geographic area based on the Consolidated Statementsend user country and are net of Cash Flows. Underintercompany sales.
Net Sales by groups of similar products and services
2020 | 2019 | 2018 | ||||||||||
Equipment | $ | 629.7 | $ | 741.8 | $ | 730.0 | ||||||
Parts and consumables | 205.8 | 221.9 | 222.3 | |||||||||
Specialty surface coatings | 22.7 | 25.7 | 29.8 | |||||||||
Service and other | 142.8 | 148.2 | 141.4 | |||||||||
Total | $ | 1,001.0 | $ | 1,137.6 | $ | 1,123.5 | ||||||
For the new standard, all excess tax benefitstwelve months ended December 31, 2019, we reclassified $0.9 million from Equipment to Parts and tax deficienciesConsumables.
Net Sales by sales channel
2020 | 2019 | 2018 | ||||||||||
Sales direct to consumer | $ | 664.9 | $ | 750.9 | $ | 735.2 | ||||||
Sales to distributors | 336.1 | 386.7 | 388.3 | |||||||||
Total | $ | 1,001.0 | $ | 1,137.6 | $ | 1,123.5 | ||||||
Contract Liabilities
Sales Returns
The right of return may exist explicitly or implicitly with our customers. When the right of return exists, we adjust the transaction price for the estimated effect of returns. We estimate the expected returns using the expected value method by assessing historical sales levels and the timing and magnitude of historical sales return levels as a percent of sales and projecting this experience into the future.
Sales Incentives
Our sales contracts may contain various customer incentives, such as volume-based rebates or other promotions. We reduce the transaction price for certain customer programs and incentive offerings that represent variable consideration. Sales incentives given to our customers are recorded as a component ofusing the provisionmost likely amount approach for income taxes in the reporting period in which they occur. Additionally, ASU 2016-09 requires that the company present excess tax benefits along with other income tax cash flows on the Consolidated Statements of Cash Flows as an operating activity rather than, as previously required, a financing activity. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016.
The differencechange in our sales incentive accrual balance for the years ended December 31, 2020 and 2019 was as follows:
2020 | 2019 | |||||||
Beginning balance | $ | 13.7 | $ | 16.7 | ||||
Additions to sales incentive accrual | 18.2 | 24.7 | ||||||
Contract payments | (20.0 | ) | (27.7 | ) | ||||
Foreign currency fluctuations | 0.2 | 0 | ||||||
Ending balance | $ | 12.1 | $ | 13.7 | ||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Deferred Revenue
We sell separately priced prepaid contracts to our customers where we receive payment at the company, through a Dutch subsidiary, and i-team Global, a Future Cleaning Technologies, B.V. company headquartered in The Netherlands, announced the January 1, 2017 formation of i-team North America B.V., a joint venture that will operate as the distributorinception of the i-mop in North America. We begancontract and defer recognition of the consideration received because we have to satisfy future performance obligations. Our deferred revenue balance is primarily attributed to prepaid maintenance contracts on our machines ranging from 12 months to 60 months. In circumstances where prepaid contracts are sold simultaneously with machines, we use an observable price to determine stand-alone selling and servicing the i-mopprice for separate performance obligations.
The change in the seconddeferred revenue balance for the years ended December 31, 2020 and 2019 was as follows:
2020 | 2019 | |||||||
Beginning balance | $ | 10.7 | $ | 8.5 | ||||
Increase in deferred revenue representing our obligation to satisfy future performance obligations | 21.0 | 26.0 | ||||||
Deferred revenue acquired from acquisition of Gaomei Cleaning Equipment Company | 0 | 1.4 | ||||||
Decrease in deferred revenue for amounts recognized in net sales for satisfied performance obligations | (21.8 | ) | (25.2 | ) | ||||
Foreign currency fluctuations | (0.6 | ) | 0 | |||||
Ending balance | $ | 9.3 | $ | 10.7 | ||||
As of December 31, 2020, $5.9 million and $3.4 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets. Of this, we expect to recognize the following approximate amounts in Net Sales in the following periods:
| 2021 | $ | 5.9 | ||
| 2022 | 2.0 | |||
| 2023 | 0.9 | |||
| 2024 | 0.4 | |||
| 2025 | 0.1 | |||
| Thereafter | 0 | |||
Total | $ | 9.3 |
As of December 31, 2019, $6.8 million and $3.9 million of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Consolidated Balance Sheets.
4. | Management Actions |
Restructuring Actions
In the fourth quarter of 2017. We own2020, we implemented a 50% ownership interestrestructuring action as part of our global reorganization efforts. The pre-tax charge of $3.5 million in the joint venture, which is accounted for under the equity method2020 consisted of accounting, with our proportionate share of income or loss presented as a component of Otherseverance-related costs included in Selling and Administrative Expense Net onin the Consolidated Statements of Operations. The charge primarily impacted our EMEA operating segment but also impacted the Americas and APAC operating segments. All restructuring costs have been substantially incurred in 2020.
In 2017, this amount is immaterial.
In the fourthfirst quarter of 2017,2020, we implemented a restructuring action primarily driven by integration actions related to our acquisition of IP Cleaning S.p.A and its subsidiaries ("IPC Group"). See Note 5 for further details regarding our acquisition of the IPC Group. The restructuring action consisted primarily of severance and includes reductions in overall staffingan effort to streamline and right-size the organization to support anticipated business requirements.our operating model in Japan. The pre-tax charge of $2,501 was$2.0 million in 2020 consisted of $1.3 million of severance-related costs and $0.7 million of other costs. Of the restructuring costs, $0.3 million were included withinin Cost of Sales and $1.7 million in Selling and Administrative Expense in the Consolidated Statements of Operations. The charge impacted our Americas, EMEA and APAC operating segments.segment. We believeestimate the anticipated savings will offset the pre-tax charge in approximately one year from the date of the action. We do not expect additionalAll restructuring costs will behave been substantially incurred in 2020.
During 2019, we implemented restructuring actions to further our integration efforts related to this restructuringthe IPC Group. The pre-tax charge of $4.8 million consisting of severance was included, with $0.3 million in Cost of Sales and $4.5 million in Selling and Administrative Expense in the Consolidated Statements of Operations. The charge impacted our EMEA and Americas operating segments. We estimate the savings will offset the pre-tax charge approximately one year from the date of the action.
A reconciliation to the ending liability balance of severance and related costs as of December 31, 20172020 is as follows:
Severance and Related Costs | ||||
December 31, 2018 balance | $ | 2.2 | ||
2019 charges and utilization: | ||||
New charges | 6.1 | |||
Cash payments | (2.5 | ) | ||
Foreign currency adjustments | (1.3 | ) | ||
December 31, 2019 balance | 4.5 | |||
2020 charges and utilization: | ||||
New charges | 6.2 | |||
Cash payments | (5.4 | ) | ||
| Foreign currency adjustments | 0.2 | |||
Adjustment to accrual | (1.0 | ) | ||
December 31, 2020 balance | $ | 4.5 | ||
| Severance and Related Costs | |||
| 2017 restructuring actions | $ | 9,558 | |
| Cash payments | (6,312 | ) | |
| Foreign currency adjustments | 190 | ||
| December 31, 2017 Balance | $ | 3,436 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
Other Actions
In 2019, we made the preliminary fair value measurementdecision to exit certain product lines, and as a result, recorded $3.3 million in Cost of Sales to reflect our estimate of inventory that will not be sold. During the year ended December 31, 2020, we recorded an additional $1.7 million in Cost of Sales in the Consolidated Statements of Operations to reflect our estimate of inventory that will not be sold, all of which was recorded in the first quarter 2020.
During the second quarter of 2019, we recorded a $2.7 million write-down of a portion of a note receivable related to the divestiture of the assets acquiredGreen Machine business to adjust the balance to net realizable value. This write-down was recorded in Selling and liabilities assumed asAdministrative Expense. In the third quarter of 2019, we collected the remaining balance of the datenote receivable.
5. | Acquisitions and Divestitures |
Gaomei
On January 4, 2019, we completed the acquisition of acquisition:
| ASSETS | |||
| Receivables | $ | 39,984 | |
| Inventories | 46,442 | ||
| Other Current Assets | 5,314 | ||
| Assets Held for Sale | 2,247 | ||
| Property, Plant and Equipment | 63,890 | ||
| Intangible Assets Subject to Amortization: | |||
| Trade Name | 26,753 | ||
| Customer Lists | 123,061 | ||
| Technology | 9,631 | ||
| Other Assets | 8,261 | ||
| Total Identifiable Assets Acquired | 325,583 | ||
| LIABILITIES | |||
| Accounts Payable | 32,227 | ||
| Accrued Expenses | 15,611 | ||
| Deferred Income Taxes | 60,433 | ||
| Other Liabilities | 9,360 | ||
| Total Identifiable Liabilities Assumed | 117,631 | ||
| Net Identifiable Assets Acquired | 207,952 | ||
| Noncontrolling Interest | (2,028 | ) | |
| Goodwill | 147,845 | ||
| Total Estimated Purchase Price, net of Cash Acquired | $ | 353,769 | |
The fair value measurements were final at as of December 31, 2017, with the exception of the fair value of accounts receivable, inventory excess and obsolescence reserves, intangible assets subject to amortization, goodwill, warranty, income tax payable and deferred income taxes. We expect the fair value measurement process to be completed no later than one year from the acquisition date.
The total purchase price consideration andincludes the fair value of the net identifiable assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. This resulted in an estimated purchase price in excess of the fair value of identifiable net assets acquired.
• | $11.3 million which was paid during the first quarter of 2019 upon close of the transaction; |
• | $11.3 million which was paid in the fourth quarter of 2019; |
• | $4.7 million which represents the estimated fair value of contingent consideration at the acquisition date. The estimate is based on a probability-weighted scenario analysis of achieving certain levels of gross profit growth over a three year period. In April 2020, the earnout agreement was modified. The final payment is based on a fixed payment plus variable payments contingent on achieving certain levels of gross profit and milestones during 2020. Based on the financial results of 2020 and the milestones achieved, consideration of $1.8 million will be paid in March 2021; and |
• | $(0.2) million which represents a working capital purchase price adjustment. |
None of the goodwill is expected to be deductible for income tax purposes. The assignment of goodwill to reporting units is not complete, pending finalization of the valuation measurements.
Waterstar
During 2018, we sold substantially all of the assets of our Waterstar business for $4.0 million in cash. The resulting gain was approximately $1.0 million and technology are being amortized on an accelerated basis. We recorded amortization expense of $15,746 inis reflected within Selling and Administrative Expense onin operating profit in our Consolidated Statements of Operations for these acquired intangible assets in 2017.Operations.
(In thousands,Tables in millions, except shares and per share data)
| Years ended December 31 | 2017 | 2016 | |||||
| Net Sales | |||||||
| Pro forma | $ | 1,057,127 | $ | 1,013,710 | |||
| As reported | 1,003,066 | 808,572 | |||||
| Net Earnings (Loss) Attributable to Tennant Company | |||||||
| Pro forma | $ | 12,288 | $ | 30,412 | |||
| As reported | (6,195 | ) | 46,614 | ||||
| Net Earnings (Loss) Attributable to Tennant Company per Diluted Share | |||||||
| Pro forma | $ | 0.68 | $ | 1.69 | |||
| As reported | (0.35 | ) | 2.59 | ||||
| Current Assets | $ | 5,949 | |
| Property, Plant and Equipment, net | 4,112 | ||
| Identified Intangible Assets | 6,055 | ||
| Goodwill | 1,739 | ||
| Other Assets | 7 | ||
| Total Assets Acquired | 17,862 | ||
| Current Liabilities | 4,764 | ||
| Other Liabilities | 53 | ||
| Total Liabilities Assumed | 4,817 | ||
| Net Assets Acquired | $ | 13,045 | |
6. | Inventories | |
Inventories as of December 31 consisted of the following:
2020 | 2019 | |||||||
Inventories carried at LIFO: | ||||||||
Finished goods | $ | 42.4 | $ | 50.9 | ||||
Raw materials, production parts and work-in-process | 21.6 | 32.5 | ||||||
Excess of FIFO over LIFO cost(a) | (31.4 | ) | (33.4 | ) | ||||
Total LIFO inventories | $ | 32.6 | $ | 50.0 | ||||
Inventories carried at FIFO: | ||||||||
Finished goods | $ | 55.0 | $ | 60.1 | ||||
Raw materials, production parts and work-in-process | 40.1 | 40.0 | ||||||
Total FIFO inventories | $ | 95.1 | $ | 100.1 | ||||
Total inventories | $ | 127.7 | $ | 150.1 | ||||
(a) | Inventories of $32.6 million as of December 31, 2020, and $50.0 million as of December 31, 2019, were valued at LIFO. The difference between replacement cost and the stated LIFO inventory value is not materially different from the reserve for the LIFO valuation method. |
| 2017 | 2016 | ||||||
| Inventories carried at LIFO: | |||||||
| Finished goods | $ | 43,439 | $ | 39,142 | |||
| Raw materials, production parts and work-in-process | 23,694 | 23,980 | |||||
| LIFO reserve | (28,429 | ) | (28,190 | ) | |||
| Total LIFO inventories | $ | 38,704 | $ | 34,932 | |||
| Inventories carried at FIFO: | |||||||
| Finished goods | $ | 54,161 | $ | 31,044 | |||
| Raw materials, production parts and work-in-process | 34,829 | 12,646 | |||||
| Total FIFO inventories | $ | 88,990 | $ | 43,690 | |||
| Total inventories | $ | 127,694 | $ | 78,622 | |||
7. | Property, Plant and Equipment |
Property, Plant and Equipment and related Accumulated Depreciation, including equipment under capitalfinance leases, as of December 31, consisted of the following:
| 2017 | 2016 | ||||||
| Property, Plant and Equipment: | |||||||
| Land | $ | 18,152 | $ | 6,328 | |||
| Buildings and improvements | 96,230 | 58,577 | |||||
| Machinery and manufacturing equipment | 151,645 | 116,221 | |||||
| Office equipment | 107,312 | 89,838 | |||||
| Work in progress | 9,429 | 27,536 | |||||
| Total Property, Plant and Equipment | 382,768 | 298,500 | |||||
| Less: Accumulated Depreciation | (202,750 | ) | (186,403 | ) | |||
| Property, Plant and Equipment, Net | $ | 180,018 | $ | 112,097 | |||
2020 | 2019 | |||||||
Property, Plant and Equipment: | ||||||||
Land | $ | 23.3 | $ | 19.2 | ||||
Buildings and improvements | 131.5 | 98.7 | ||||||
Machinery and manufacturing equipment | 157.0 | 165.2 | ||||||
Office equipment | 118.0 | 107.2 | ||||||
Construction in progress | 7.7 | 22.2 | ||||||
Total Property, Plant and Equipment | 437.5 | 412.5 | ||||||
Less: Accumulated Depreciation | (252.0 | ) | (239.2 | ) | ||||
Property, Plant and Equipment, Net | $ | 185.5 | $ | 173.3 | ||||
Depreciation expense was $26,199$32.6 million in 2017,
8. | Goodwill and Intangible Assets |
For purposes of performing our goodwill impairment analysis, we have identified our reporting units as North America, Latin America, Coatings, EMEA and APAC. AsWe have the option of December 31, 2017, 2016 and 2015, we performed an analysis offirst analyzing qualitative factors to determine whether it is more likely than not that the fair value of aany reporting unit is less than its carrying amount as a basis for determining whether it is necessaryamount. However, we may elect to perform thea quantitative goodwill impairment test in lieu of the qualitative test. Based on our analysis, of qualitative factors, we determined that itthere was not necessary to perform the quantitative0 goodwill impairment test for anyas of our reporting units.
The changes in the carrying amount of Goodwill are as follows:
Accumulated | ||||||||||||
Impairment | ||||||||||||
Goodwill | Losses | Total | ||||||||||
Balance as of December 31, 2018 | $ | 221.7 | $ | (39.0 | ) | $ | 182.7 | |||||
Additions | 15.6 | — | 15.6 | |||||||||
Foreign currency fluctuations | (2.2 | ) | (1.0 | ) | (3.2 | ) | ||||||
Balance as of December 31, 2019 | $ | 235.1 | $ | (40.0 | ) | $ | 195.1 | |||||
Additions | 0 | — | 0 | |||||||||
Foreign currency fluctuations | 14.4 | (1.7 | ) | 12.7 | ||||||||
Balance as of December 31, 2020 | $ | 249.5 | $ | (41.7 | ) | $ | 207.8 | |||||
| Goodwill | Accumulated Impairment Losses | Total | |||||||||
| Balance as of December 31, 2015 | $ | 60,447 | $ | (43,644 | ) | $ | 16,803 | ||||
| Additions | 3,787 | — | 3,787 | ||||||||
| Foreign currency fluctuations | (5,837 | ) | 6,312 | 475 | |||||||
| Balance as of December 31, 2016 | $ | 58,397 | $ | (37,332 | ) | $ | 21,065 | ||||
| Additions | 147,845 | — | 147,845 | ||||||||
| Purchase accounting adjustments | (1,865 | ) | — | (1,865 | ) | ||||||
| Foreign currency fluctuations | 22,847 | (3,848 | ) | 18,999 | |||||||
| Balance as of December 31, 2017 | $ | 227,224 | $ | (41,180 | ) | $ | 186,044 | ||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The balances of acquired Intangible Assets, excluding Goodwill, as of December 31, are as follows:
| Customer Lists | Trade Names | Technology | Total | ||||||||||||
| Balance as of December 31, 2017 | |||||||||||||||
| Original cost | $ | 149,355 | $ | 31,968 | $ | 14,589 | $ | 195,912 | |||||||
| Accumulated amortization | (17,870 | ) | (2,436 | ) | (3,259 | ) | (23,565 | ) | |||||||
| Carrying amount | $ | 131,485 | $ | 29,532 | $ | 11,330 | $ | 172,347 | |||||||
| Weighted-average original life (in years) | 15 | 10 | 11 | ||||||||||||
| Balance as of December 31, 2016 | |||||||||||||||
| Original cost | $ | 8,016 | $ | 2,000 | $ | 5,136 | $ | 15,152 | |||||||
| Accumulated amortization | (5,948 | ) | — | (2,744 | ) | (8,692 | ) | ||||||||
| Carrying amount | $ | 2,068 | $ | 2,000 | $ | 2,392 | $ | 6,460 | |||||||
| Weighted-average original life (in years) | 15 | 15 | 13 | ||||||||||||
Customer | Trade | |||||||||||||||
Lists | Names | Technology | Total | |||||||||||||
Balance as of December 31, 2020 | ||||||||||||||||
Original cost | $ | 166.2 | $ | 34.4 | $ | 17.9 | $ | 218.5 | ||||||||
Accumulated amortization | (70.3 | ) | (12.3 | ) | (9.7 | ) | (92.3 | ) | ||||||||
Carrying amount | $ | 95.9 | $ | 22.1 | $ | 8.2 | $ | 126.2 | ||||||||
Weighted-average original life (in years) | 15 | 11 | 11 | |||||||||||||
Balance as of December 31, 2019 | ||||||||||||||||
Original cost | $ | 154.1 | $ | 31.8 | $ | 17.1 | $ | 203.0 | ||||||||
Accumulated amortization | (49.8 | ) | (8.2 | ) | (7.3 | ) | (65.3 | ) | ||||||||
Carrying amount | $ | 104.3 | $ | 23.6 | $ | 9.8 | $ | 137.7 | ||||||||
Weighted-average original life (in years) | 15 | 11 | 11 | |||||||||||||
Amortization expense on Intangible Assets was $17,054, $409$20.8 million, $22.2 million and $1,481$22.1 million for the years ended December 31, 2017,
Estimated aggregate amortization expense based on the current carrying amount of amortizable Intangible Assets for each of the five succeeding years is as follows:
| 2021 | $ | 20.5 | ||
| 2022 | 18.3 | |||
| 2023 | 16.6 | |||
| 2024 | 14.9 | |||
| 2025 | 13.5 | |||
| Thereafter | 42.4 | |||
Total | $ | 126.2 |
| 2018 | $ | 22,345 | |
| 2019 | 21,691 | ||
| 2020 | 20,198 | ||
| 2021 | 18,561 | ||
| 2022 | 16,367 | ||
| Thereafter | 73,185 | ||
| Total | $ | 172,347 | |
9. | Debt | |
Credit Facility Borrowings
2017 Credit Agreement
In order to finance the acquisition of the IPC Group, on April 4, 2017, the Company and certain of our foreign subsidiaries entered into a secured Credit Agreement (the “2017"2017 Credit Agreement”Agreement") with JPMorgan, as administrative agent, Goldman Sachs Bank USA, as syndication agent, Wells Fargo, National Association, U.S. Bank National Association, and HSBC Bank USA, National Association, as co-documentation agents, and the lenders (including JPMorgan) from time to time party thereto. The 2017 Credit Agreement provides the company and certain of our foreign subsidiaries access to a senior secured credit facility until April 4, 2022, consisting of a multi-tranche term loan facility in an amount up to $400,000 and a revolving facility in an amount up to $200,000 with an option to expand the revolving facility by $150,000, with the consent of the lenders willing to provide additional borrowings in the form of increases to their revolving facility commitment or funding of incremental term loans. Borrowings may be denominated in U.S. dollars or certain other currencies.
The fee for committed funds under the revolving facility of the 2017 Credit Agreement ranges from an annual rate of 0.175% to 0.35%, depending on the company’sCompany’s leverage ratio. Borrowings denominated in U.S. dollars under the 2017 Credit Agreement bear interest at a rate per annum equal to (a) the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the adjusted LIBOR rate for a one month period, but in any case, not less than 0%, plus, in any such case, 1.00%, plus an additional spread of 0.075% to 0.90% for revolving loans and 0.25% to 1.25% for term loans, depending on the company’s leverage ratio, or (b) the LIBOR Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities, but in any case, not less than 0%, plus an additional spread of 1.075% to 1.90% for revolving loans and 1.25% to 2.25% for term loans, depending on the company’sCompany’s leverage ratio.
The 2017 Credit Agreement contains customary representations, warranties and covenants, including, but not limited to, covenants restricting the company’sCompany’s ability to incur indebtedness and liens and merge or consolidate with another entity. The 2017 Credit Agreement also contains financial covenants, requiring us to maintain a ratio of consolidated total indebtedness to consolidated earnings before income, taxes, depreciation and amortization, subject to certain adjustments ("Adjusted EBITDA") of not greater than 4.254.00 to 1, as well as requiring us to maintain a ratio of consolidated Adjusted EBITDA to consolidated interest expense of no less than 3.50 to 1 for the year ended December 31, 2017.2020. The 2017 Credit Agreement also contains a financial covenant requiring us to maintain a senior secured net indebtedness to Adjusted EBITDA ratio of not greater than 3.50 to 1. These financial covenants may restrict our ability to pay dividends and purchase outstanding shares of our common stock. In connection with the closing of the Gaomei acquisition, we elected an acquisition holiday as provided for under the 2017 Credit Agreement, which increased the net leverage ratio from 4.00 to 1 to 4.50 to 1 and the senior secured net leverage ratio from 3.50 to 1 to 4.00 to 1 during each quarter of 2019.We were in compliance with our financial covenants at December 31, 2017.2020.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
In 2018, the Company signed Amendment No.1 to the 2017 Credit Agreement, which clarified that the adoption of the new lease accounting standard in 2019 would have no effect on any financial covenant calculations.
Effective with the year ended December 31, 2018, we are required to repay the senior credit agreement with 25% to 50% of our excess cash flow from the preceding fiscal year, as defined in the agreement, unless our net leverage ratio for such preceding fiscal year is less than or equal to 3.00 to 1, which will be first measured using our fiscal year ended December 31, 2018.
Senior Unsecured Notes
On April 18,2017, we issued and sold $300,000$300.0 million in aggregate principal amount of our 5.625% Senior Notes due 2025 (the “Notes”), pursuant to an Indenture, dated as of April 18,2017, among the company,Company, the Guarantors (as defined therein), and Wells Fargo Bank, National Association, a national banking association, as trustee. The Notes are guaranteed by Tennant Coatings, Inc., and Tennant Sales and Service Company (collectively, the “Guarantors”), which are wholly ownedwholly-owned subsidiaries of the company. Separate financial information of the Guarantors is presented in Note 22.
The Notes will mature on May 1,2025. Interest on the Notes will accrueaccrues at the rate of 5.625% per annum and will beis payable semiannually in cash on each May 1 and November 1, commencing on November 1,2017.
The Notes and the guarantees constitute senior unsecured obligations of the companyCompany and the Guarantors, respectively. The Notes and the guarantees, respectively, are: (a) equal in right of payment with all of the company’sCompany’s and the Guarantors’ senior debt, without giving effect to collateral arrangements; (b) senior in right of payment to all of the company’sCompany’s and the Guarantors’ future subordinated debt, if any; (c) effectively subordinated in right of payment to all of the company’sCompany’s and the Guarantors’ debt and obligations that are secured, including borrowings under the company’sCompany’s senior secured credit facilities for so long as the senior secured credit facilities are secured, to the extent of the value of the assets securing such liens; and (d) structurally subordinated in right of payment to all liabilities (including trade payables) of the company’sCompany’s and the Guarantors’ subsidiaries that do not guarantee the Notes. The Notes also contain customary representations, warranties and covenants, and are less restrictive than those contained in the 2017 Credit Agreement.
We used the net proceeds from this offering to refinance a $300,000$300.0 million term loan under our 2017 Credit Agreement that we borrowed as part of the financing for the acquisition of the IPC Group and to pay related fees and expenses.
In the second quarter of 2020, the Company early adopted the SEC's rule titled "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities," which simplifies the disclosure requirements related to the Notes under Rule 3-10 of Regulation S-X. Under this amended rule, the Company is not required to disclose separate financial statements for the guarantees as it no longer has a reporting requirement. The Company has filed a Form 15 for the Guarantors to suspend the Company's duty to file reports on the Guarantor financial statements.
The Indenture governing the Notes contains covenants that limit, among other things, our ability and the ability of our restricted subsidiary to incur additional indebtedness (including guarantees thereof); incur or create liens on assets securing indebtedness; make certain restricted payments; make certain investments; dispose of certain assets; allow to exist certain restrictions on the ability of the our restricted subsidiaries to pay dividends or make other payments to us; engage in certain transactions with affiliates; and consolidate or merge with or into other companies. If we experience certain kinds of changes of control, we may be required to repurchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. If we makesmake certain asset sales and do not use the net proceeds for specified purposes, we may be required to offer to repurchase the Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Registration Rights Agreement
In connection with the issuance and sale of the Notes, the companyCompany entered into a Registration Rights Agreement, dated April 18,2017, among the company,Company, the Guarantors and Goldman, Sachs & Co. and J.P. Morgan Securities LLC (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the companyCompany agreed (1)(1) to use its commercially reasonable efforts to consummate an exchange offer to exchange the original Notes for new registered notes (the “Exchange Notes”"Exchange Notes"), with terms substantially identical in all material respects with the Original Notes (except that the Exchange Notes will not contain terms with respect to additional interest, registration rights or transfer restrictions) and (2)(2) if required, to have a shelf registration statement declared effective with respect to resales of the Notes. If
During the company fails to satisfy certain obligations under the Registration Rights Agreement within 360 days, it will be required to pay additional interest to the holdersfirst quarter of the Notes under certain circumstances.
Debt outstanding at as of December 31 consisted of the following:
| 2017 | 2016 | ||||||
| Long-Term Debt: | |||||||
| Senior Unsecured Notes | $ | 300,000 | $ | — | |||
| Credit Facility Borrowings | 80,000 | 36,143 | |||||
| Capital Lease Obligations | 3,279 | 51 | |||||
| Total Long-Term Debt | 383,279 | 36,194 | |||||
| Less: Unamortized Debt Issuance Costs | (6,440 | ) | — | ||||
Less: Current Maturities of Credit Facility Borrowings, Net of Debt Issuance Costs(1) | (29,413 | ) | (3,459 | ) | |||
Less: Current Maturities of Capital Lease Obligations(1) | (1,470 | ) | — | ||||
| Long-term portion | $ | 345,956 | $ | 32,735 | |||
2020 | 2019 | |||||||
Senior unsecured notes | $ | 300.0 | $ | 300.0 | ||||
Secured credit facility borrowings | 10.0 | 40.0 | ||||||
Other secured borrowings | 1.5 | 2.4 | ||||||
Finance lease liabilities | 0.1 | 0.2 | ||||||
Unamortized debt issuance costs | (3.1 | ) | (3.8 | ) | ||||
Total debt | 308.5 | 338.8 | ||||||
Less: current portion of long-term debt(1) | (10.9 | ) | (31.3 | ) | ||||
Long-term portion | $ | 297.6 | $ | 307.5 | ||||
| Current |
As of December 31, 2017,2020, we had outstanding borrowings under our Senior Unsecured Notes of $300,000.$300.0 million. We had outstanding borrowings under our 2017 Credit Agreement, totaling $60,000 under our term loan facility and $20,000of $10.0 million under our revolving facility and had letters of credit and bank guarantees outstanding in the amount of $3.3 million, leaving $180,000approximately $186.7 million of unused borrowing capacity on our revolving facility. Although we are onlynot required to make a minimum principal payment of $5,000on our revolving facility during 2018,2021, we have both the intent and the ability to pay an additional $25,000$10.0 million during 2018.2021. As such, we have classified $30,000$10.0 million as current maturities of long-term debt. In addition, we had stand alone letters of credit and bank guarantees outstanding in the amount of $4,670, leaving approximately $175,330 of unused borrowing capacity on our revolving facility. Commitment fees on unused lines of credit for the year ended December 31, 20172020 were $570.$0.6 million. The overall weighted average cost of debt is approximately 5.1%5.5% and, net of a related cross-currency swap instrument, is approximately 4.2%4.5%. Further details regarding the cross-currency swap instrument are discussed in Note 11.
The aggregate maturities of our outstanding debt, including capital lease obligationsexcluding unamortized debt issuance costs, as of
| 2021 | $ | 10.9 | ||
| 2022 | 0.5 | |||
| 2023 | 0.2 | |||
| 2024 | 0 | |||
| 2025 | 300.0 | |||
| Thereafter | 0 | |||
Total aggregate maturities | $ | 311.6 |
| 2018 | $ | 6,609 | |
| 2019 | 7,868 | ||
| 2020 | 9,921 | ||
| 2021 | 12,006 | ||
| 2022 | 46,875 | ||
| Thereafter | 300,000 | ||
| Total aggregate maturities | $ | 383,279 | |
| 2017 | 2016 | ||||||
| Other Current Liabilities: | |||||||
| Taxes, other than income taxes | $ | 14,760 | $ | 7,122 | |||
| Warranty | 12,676 | 10,960 | |||||
| Deferred revenue | 5,815 | 2,366 | |||||
| Rebates | 13,466 | 11,102 | |||||
| Freight | 3,208 | 4,274 | |||||
| Restructuring | 4,267 | 394 | |||||
| Miscellaneous accrued expenses | 10,779 | 4,385 | |||||
| Other | 4,476 | 3,014 | |||||
| Total Other Current Liabilities | $ | 69,447 | $ | 43,617 | |||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
10. | Other Current Liabilities |
Other Current Liabilities as of December 31 consisted of the following:
2020 | 2019 | |||||||
Other Current Liabilities: | ||||||||
Taxes | $ | 12.5 | $ | 10.4 | ||||
Warranty | 11.1 | 12.7 | ||||||
Deferred revenue | 5.9 | 6.8 | ||||||
Customer sales incentives | 12.1 | 13.7 | ||||||
Freight | 4.6 | 4.9 | ||||||
Restructuring | 4.5 | 4.5 | ||||||
Operating leases | 16.3 | 16.7 | ||||||
Miscellaneous accrued expenses | 11.3 | 11.6 | ||||||
Other | 5.1 | 4.7 | ||||||
Total Other Current Liabilities | $ | 83.4 | $ | 86.0 | ||||
The changes in warranty reserves for the three years ended December 31 were as follows:
2020 | 2019 | 2018 | ||||||||||
Beginning balance | $ | 12.7 | $ | 13.1 | $ | 12.7 | ||||||
Product warranty provision | 11.9 | 11.1 | 13.2 | |||||||||
Foreign currency | 0.1 | 0 | (0.2 | ) | ||||||||
Claims paid | (13.6 | ) | (11.5 | ) | (12.6 | ) | ||||||
Ending balance | $ | 11.1 | $ | 12.7 | $ | 13.1 | ||||||
| 2017 | 2016 | 2015 | |||||||||
| Beginning balance | $ | 10,960 | $ | 10,093 | $ | 9,686 | |||||
| Product warranty provision | 12,124 | 12,413 | 11,719 | ||||||||
| Acquired warranty obligations | 1,208 | 42 | — | ||||||||
| Foreign currency | 274 | 82 | (207 | ) | |||||||
| Claims paid | (11,890 | ) | (11,670 | ) | (11,105 | ) | |||||
| Ending balance | $ | 12,676 | $ | 10,960 | $ | 10,093 | |||||
11. | Derivatives | |
Hedge Accounting and Hedging Programs
In 2015, we expanded our foreign currency hedging programs to include foreign exchange purchased options and forward contracts to hedge our foreign currency denominatedcurrency-denominated revenue. We recognize all derivative instruments as either assets or liabilities in our Consolidated Balance Sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.
We evaluate hedge effectiveness on our hedges that are designated and qualify for hedge accounting at the inception of the hedge prospectively, as well as retrospectively, and record any ineffective portion of the hedging instruments in Net Foreign Currency Transaction Losses on our Consolidated Statements of Operations. The time value of purchased contracts is recorded in Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations.
Our hedging policy establishes maximum limits for each counterparty to mitigate any concentration of risk.
Balance Sheet Hedging
Hedges of Foreign Currency Assets and Liabilities
We hedge our net recognized foreign currency denominatedcurrency-denominated assets and liabilities with foreign exchange forward contracts to reduce the risk that the value of these assets and liabilities will be adversely affected by changes in exchange rates. These contracts hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value as either assets or liabilities on the Consolidated Balance Sheets with changes in the fair value recorded to Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations. These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged. At December 31, 20172020 and December 31, 2016,2019, the notional amounts of foreign currency forward exchange contracts outstanding not designated as hedging instruments were $60,858$57.3 million and $42,866,$41.9 million, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in connection with our acquisition of IPC Group, we entered into a foreign currency option contract not designated as a hedging instrument for a notional amount of €180,000. The option contract has since expiredmillions, except shares and there were no outstanding foreign currency option contracts not designated as hedging instruments as of December 31, 2017 and December 31, 2016.
Cash Flow Hedging
Hedges of Forecasted Foreign Currency Transactions
In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. We may use foreign exchange option contracts or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to one year. We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominatedcurrency-denominated revenue in the normal course of business, and accordingly, they are not speculative in nature. The notional amount of outstanding foreign currency forward contracts designated as cash flow hedges were $2,928was $2.7 million and $2,127$3.0 million as of December 31, 20172020 and December 31, 2016,2019, respectively. The notional amount of outstanding foreign currency option contracts designated as cash flow hedges was $8,619$8.2 million and $8,522$9.8 million as of December 31, 20172020 and December 31, 2016,2019, respectively.
Foreign Currency Derivatives
We use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between Tennantthe Company and its subsidiaries. During the second quarter of 2017, we entered into Euroeuro to U.S. dollar foreign exchange cross currencycross-currency swaps for all of the anticipated cash flows associated with an intercompany loan from a wholly-owned European subsidiary. We entered into these foreign exchange cross currencycross-currency swaps to hedge the foreign currency denominatedcurrency-denominated cash flows associated with this intercompany loan, and accordingly, they are not speculative in nature. We designated these cross currencycross-currency swaps as cash flow hedges. The hedged cash flows as of
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. We record changes in the fair value of these cash flow hedges in Accumulated Other Comprehensive Loss in our Consolidated Balance Sheets, until the forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge to Net Sales. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from Accumulated Other Comprehensive Loss to Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations at that time. If we do not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in Net Foreign Currency Transaction Losses in our Consolidated Statements of Operations.
The fair value of derivative instruments on our Consolidated Balance Sheets as of December 31 consisted of the following:
| 2017 | 2016 | |||||||||||||||
| Fair Value Asset Derivatives | Fair Value Liability Derivatives | Fair Value Asset Derivatives | Fair Value Liability Derivatives | |||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||
Foreign currency option contracts(1) | $ | 86 | $ | — | $ | 184 | $ | — | ||||||||
Foreign currency forward contracts(1) | 7,218 | 34,961 | — | 13 | ||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||
Foreign currency forward contracts(1) | $ | 442 | $ | 425 | $ | 12 | $ | 162 | ||||||||
Derivative Assets | Derivative Liabilities | ||||||||||||||||||
Balance Sheet Location | December 31, 2020 | December 31, 2019 | Balance Sheet Location | December 31, 2020 | December 31, 2019 | ||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||||
Foreign currency forward contracts(1) | Other Current Assets | $ | 1.9 | $ | 2.5 | Other Current Liabilities | 0 | 0 | |||||||||||
Foreign currency forward contracts(1) | Other Assets | 0 | 0 | Other Liabilities | $ | 24.1 | $ | 12.6 | |||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||
Foreign currency forward contracts(1) | Other Current Assets | 0.4 | 0.6 | Other Current Liabilities | 0.7 | 0.3 | |||||||||||||
| Contracts that mature within the next 12 months are included in Other Current Assets and Other Current Liabilities for asset derivatives and liabilities derivatives, respectively, on our Consolidated Balance Sheets. Contracts with maturities greater than 12 months are included in Other Assets and Other Liabilities for asset derivatives and liability derivatives, respectively, in our Consolidated Balance Sheets. Amounts included in our Consolidated Balance Sheets are recorded net where a right of offset exists with the same derivative counterparty. |
As of December 31, 2017,2020, we anticipate reclassifying approximately $1,865$1.8 million of gains from Accumulated Other Comprehensive Loss to n
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The following tables include the amounts in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the years ended December 31, 2020 and December 31, 2019:
2020 | 2019 | |||||||||||||||
Total | Amount of Gain (Loss) on Cash Flow Hedge Activity | Total | Amount of Gain (Loss) on Cash Flow Hedge Activity | |||||||||||||
Net Sales | $ | 1,001.0 | $ | (0.2 | ) | $ | 1,137.6 | $ | (0.1 | ) | ||||||
Interest Income | 3.3 | 2.7 | 3.3 | 2.9 | ||||||||||||
Net Foreign Currency Transaction Losses | (5.3 | ) | (15.0 | ) | (0.7 | ) | 3.4 | |||||||||
The effect of foreign currency derivative instruments designated as cash flow hedges and foreign currency derivative instruments not designated as hedges in our Consolidated Statements of EarningsOperations for the three years ended December 31 were as follows:
| 2017 | 2016 | 2015 | |||||||||||||||||||||
| Foreign Currency Option Contracts | Foreign Currency Forward Contracts | Foreign Currency Option Contracts | Foreign Currency Forward Contracts | Foreign Currency Option Contracts | Foreign Currency Forward Contracts | ||||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||||||||
Net (loss) gain recognized in Other Comprehensive Income (Loss), net of tax(1) | $ | (193 | ) | $ | (16,226 | ) | $ | (259 | ) | $ | (73 | ) | $ | 31 | $ | 77 | |||||||
| Net (loss) gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales | (178 | ) | (37 | ) | (148 | ) | 7 | — | 5 | ||||||||||||||
| Net gain reclassified from Accumulated Other Comprehensive Loss in earnings, net of tax, effective portion to Interest Income | — | 1,198 | — | — | — | — | |||||||||||||||||
| Net loss reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction Losses | — | (12,555 | ) | — | — | — | — | ||||||||||||||||
Net (loss) gain recognized in earnings(2) | (13 | ) | 10 | (11 | ) | 2 | 6 | (2 | ) | ||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
Net (loss) gain recognized in earnings(3) | $ | — | $ | (6,161 | ) | $ | — | $ | (890 | ) | $ | — | $ | 4,047 | |||||||||
2020 | 2019 | 2018 | ||||||||||||||||||||||
Foreign Currency Option Contracts | Foreign Currency Forward Contracts | Foreign Currency Option Contracts | Foreign Currency Forward Contracts | Foreign Currency Option Contracts | Foreign Currency Forward Contracts | |||||||||||||||||||
Derivatives in cash flow hedging relationships: | ||||||||||||||||||||||||
Net gain (loss) recognized in Other Comprehensive Income (Loss), net of tax(1) | $ | (0.1 | ) | $ | (7.4 | ) | $ | (0.3 | ) | $ | 8.6 | $ | 0.1 | $ | 9.0 | |||||||||
Net (loss) gain reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Sales | 0 | (0.1 | ) | 0 | 0 | (0.1 | ) | 0 | ||||||||||||||||
Net gain reclassified from Accumulated Other Comprehensive Loss in earnings, net of tax, effective portion to Interest Income | 0 | 2.0 | 0 | 2.2 | 0 | 1.9 | ||||||||||||||||||
Net gain (loss) reclassified from Accumulated Other Comprehensive Loss into earnings, net of tax, effective portion to Net Foreign Currency Transaction Losses | 0 | (11.6 | ) | 0 | 2.6 | 0 | 6.4 | |||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||
Net loss recognized in earnings(2) | 0 | (5.0 | ) | 0 | (1.3 | ) | 0 | (2.5 | ) | |||||||||||||||
| Net change in the fair value of the effective portion classified in Other Comprehensive |
|
Classified in Net Foreign Currency Transaction Losses. |
12. | Fair Value Measurements |
Estimates of fair value for financial assets and financial liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
• | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
• | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in active markets for identical assets or liabilities.
Our population of assets and liabilities subject to fair value measurements at
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | |||||||||||||||
| Foreign currency forward exchange contracts | $ | 7,660 | $ | — | $ | 7,660 | $ | — | |||||||
| Foreign currency option contracts | 86 | — | 86 | — | |||||||||||
| Total Assets | $ | 7,746 | $ | — | $ | 7,746 | $ | — | |||||||
| Liabilities: | |||||||||||||||
| Foreign currency forward exchange contracts | $ | 35,386 | $ | — | $ | 35,386 | $ | — | |||||||
| Total Liabilities | $ | 35,386 | $ | — | $ | 35,386 | $ | — | |||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Foreign currency forward exchange contracts | $ | 3.0 | 0 | $ | 3.0 | 0 | ||||||||||
Total Assets | 3.0 | 0 | 3.0 | 0 | ||||||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward exchange contracts | 25.5 | 0 | 25.5 | 0 | ||||||||||||
Contingent consideration | 1.8 | 0 | 0 | 1.8 | ||||||||||||
Total Liabilities | $ | 27.3 | 0 | $ | 25.5 | $ | 1.8 | |||||||||
Our population of assets and liabilities subject to fair value measurements as of December 31, 2019 were as follows:
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Foreign currency forward exchange contracts | $ | 6.4 | 0 | $ | 6.4 | 0 | ||||||||||
Total Assets | 6.4 | 0 | 6.4 | 0 | ||||||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward exchange contracts | 16.2 | 0 | 16.2 | 0 | ||||||||||||
Contingent consideration | 2.1 | 0 | 0 | 2.1 | ||||||||||||
Total Liabilities | $ | 18.3 | 0 | $ | 16.2 | $ | 2.1 | |||||||||
Our foreign currency forward exchange and option contracts are valued using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present value amount. Further details regarding our foreign currency forward exchange and option contracts are discussed in Note 11.
The carrying amounts reported in the Consolidated Balance Sheets for Cash and Cash Equivalents, Restricted Cash, Receivables, Other Current Assets, Accounts Payable and Other Current Liabilities approximate fair value due to their short-term nature.
The fair marketvalue and carrying value of our Long-Term Debt approximates costtotal debt, including current portion, was $323.4 million and $308.5 million, respectively, as of December 31, 2020. The fair value was calculated based on the borrowing rates currently available to us for bank loans with similar terms and remaining maturities.
From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets, goodwill and other intangible assets, as part of a business acquisition. These assets are measured and recognized at amounts equal to the fair value determined as of the date of acquisition. Fair value valuations are based on the information available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by us. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of assets acquired and liabilities assumed as part of a business acquisition are based on valuations involving significant unobservable inputs, or Level 3, in the fair value hierarchy.
These assets are also subject to periodic impairment testing by comparing the respective carrying value of each asset to the estimated fair value of the reporting unit or asset group in which they reside. In the event we determine these assets to be impaired, we would recognize an impairment loss equal to the amount by which the carrying value of the reporting unit, impaired asset or asset group exceeds its estimated fair value. These periodic impairment tests utilize company-specific assumptions involving significant unobservable inputs, or Level 3, in the fair value hierarchy.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
13. | Retirement Benefit Plans |
Substantially all U.S. employees are covered by various retirement benefit plans, including postretirement medical plans and defined contribution savings plans. Retirement benefits for eligible employees in foreign locations are funded principally through defined benefit plans, annuity or government programs. The total cost of benefits for our plans was $13,253, $12,108$12.3 million, $13.7 million and
We had a qualified, funded defined benefit retirement plan (the “U.S. Pension Plan”) covering certain current and retired employees in the U.S. Pension Plan benefits are based on the years of service and compensation during the highest five consecutive years of service in the final ten years of employment. No new participants have entered the plan since 2000. During 2015, the plan was amended to freeze benefits for all participants effective January 31,2017. On February 15,2017, the Board of Directors approved the termination of the U.S. Pension Plan, effective May 15,2017. Participants who elected an immediate lump sum distribution were paid out in December 2017. Assets for participants who elected or are currently receiving annuity payments and those who have elected to defer their benefits were transferred to the annuity company, Pacific Life, in December 2017. In December 2017, excessExcess assets of $6,305 were transferred from the Tennant Company Pension Trust to the Tennant Company Retirement Savings Plan to deliver future discretionary benefits to plan participants.
We have a U.S. postretirement medical benefit plan (the “U.S. Retiree Plan”) to provide certain healthcare benefits for U.S. employees hired before January 1, 1999. Eligibility for those benefits is based upon a combination of years of service with us and age upon retirement.
Our defined contribution savings plan (“401(k)”(“401(k) plan”) covers substantially all U.S. employees. Under this plan, we match up to
We have a U.S. nonqualified supplemental benefit plan (the “U.S. Nonqualified Plan”) to provide additional retirement benefits for certain employees whose benefits under our 401(k)401(k) plan or U.S. Pension Plan are limited by either the Employee Retirement Income Security Act or the Internal Revenue Code.
We also have defined benefit pension plans in the United Kingdom, Germany and GermanyItaly (the “U.K. Pension Plan” and, the “German Pension Plan” and the "Italian Pension Plan"). The U.K. Pension Plan, German Pension Plan and GermanItalian Pension Plan cover certain current and retired employees and bothall plans are closed to new participants.
We expect to contribute approximately $140$0.1 million to our U.S. Nonqualified Plan, $771$0.7 million to our U.S. Retiree Plan, $292and $0.4 million to our U.K. Pension Plan and $36in 2021. We expect contributions to our German and Italian Pension Plans to be less than $0.1 million in 2021.
Weighted-average asset allocations by asset category of the U.K. Pension Plan in 2018. There were no contributions made to the U.S. Pension Plan during 2017.
Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Asset category | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Investment account held by pension plan(1) | $ | 13.3 | $ | 0 | $ | 0 | $ | 13.3 | ||||||||
Total | $ | 13.3 | $ | 0 | $ | 0 | $ | 13.3 | ||||||||
(1) | This category is comprised of investments in insurance contracts. |
Weighted-average asset allocations by asset category of the U.K. Pension Plan and the Tennant Company Retirement Savings Plan are as of
| Asset Category | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Cash and Cash Equivalents | $ | 6,305 | $ | 6,305 | $ | — | $ | — | |||||||
Investment Account held by Pension Plan(1) | 11,163 | — | — | 11,163 | |||||||||||
| Total | $ | 17,468 | $ | 6,305 | $ | — | $ | 11,163 | |||||||
Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Asset category | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Cash and Cash Equivalents | $ | 2.8 | $ | 2.8 | $ | 0 | $ | 0 | ||||||||
Investment account held by pension plan(1) | 12.2 | 0 | 0 | 12.2 | ||||||||||||
Total | $ | 15.0 | $ | 2.8 | $ | 0 | $ | 12.2 | ||||||||
| This category is comprised of investments in insurance contracts. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and U.K. Pension Plans as of December 31, 2016 are as follows:
| Asset Category | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Cash and Cash Equivalents | $ | 663 | $ | 663 | $ | — | $ | — | |||||||
| Mutual Funds: | |||||||||||||||
| U.S. Large-Cap | 9,803 | 9,803 | — | — | |||||||||||
| U.S. Small-Cap | 2,584 | 2,584 | — | — | |||||||||||
| International Equities | 2,244 | 2,244 | — | — | |||||||||||
| Fixed-Income Domestic | 4,564 | 4,564 | — | — | |||||||||||
| Collective Investment Funds | 26,531 | — | 26,531 | — | |||||||||||
Investment Account held by Pension Plan(1) | 9,562 | — | — | 9,562 | |||||||||||
| Total | $ | 55,951 | $ | 19,858 | $ | 26,531 | $ | 9,562 | |||||||
Estimates of the fair value of U.S. and U.Kthe U.K. Pension Plan and the Tennant Company Retirement Savings Plan assets are based on the framework established in the accounting guidance for fair value measurements. A brief description of the three levels can be found in Note 12. Equity Securities and Mutual Funds traded in active markets are classified as Level 1. Collective Investment Funds are measured at fair value using quoted market prices. They are classified as Level 2 as they trade in a non-active market for which asset prices are readily available. The Investment Account held by the U.K. Pension Plan invests in insurance contracts for purposes of funding the U.K. Pension Plan and is classified as Level 3. The fair value of the Investment Account is the cash surrender values as determined by the provider which are the amounts the plan would receive if the contracts were cashed out at year end. The underlying assets held by these contracts are primarily invested in assets traded in active markets.
A reconciliation of the beginning and ending balances of the Level 3 investments of our U.K. Pension Plan during the years ended areDecember 31 is as follows:
| 2017 | 2016 | ||||||
| Fair value at beginning of year | $ | 9,562 | $ | 10,691 | |||
| Purchases, sales, issuances and settlements, net | (535 | ) | 7 | ||||
| Net gain | 1,190 | 674 | |||||
| Foreign currency | 946 | (1,810 | ) | ||||
| Fair value at end of year | $ | 11,163 | $ | 9,562 | |||
2020 | 2019 | |||||||
Fair value at beginning of year | $ | 12.2 | $ | 10.8 | ||||
Purchases, sales, issuances and settlements, net | 0.1 | 0.2 | ||||||
Net gain | 0.6 | 0.8 | ||||||
Foreign currency | 0.4 | 0.4 | ||||||
Fair value at end of year | $ | 13.3 | $ | 12.2 | ||||
The primary objective of our U.S. and U.K. Pension PlansPlan is to meet retirement income commitments to plan participants at a reasonable cost to us and to maintain a sound actuarially funded status. This objective is accomplished through growth of capital and safety of funds invested. The pension plans' assetsAssets are invested in securities to achieve growth of capital over inflation through appreciation and accumulation and reinvestment of dividend and interest income. Investments are diversified to control risk. The target allocation for the U.S. Pension Plan was 70% debt securities and 30% equity. Equity securities within the U.S. Pension Plan did not include any direct investments in Tennant Company Common Stock. The U.K. Pension Plan is invested in insurance contracts with underlying investments primarily in equity and fixed income securities. Our German Pension Plan is unfunded, which is customary in that country.
Weighted-average assumptions used to determine benefit obligations as of December 31 are as follows:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Discount rate | 3.28 | % | 3.92 | % | 2.45 | % | 2.64 | % | 3.26 | % | 3.58 | % | |||||
| Rate of compensation increase | — | % | 3.00 | % | 3.50 | % | 3.50 | % | — | — | |||||||
Non-U.S. | Postretirement | |||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Discount rate | 2.06 | % | 3.01 | % | 1.05 | % | 1.42 | % | 2.07 | % | 3.06 | % | ||||||||||||
Rate of compensation increase | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||||||
Weighted-average assumptions used to determine net periodic benefit costs as of December 31 are as follows:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
| Discount rate | 3.92 | % | 4.08 | % | 3.76 | % | 2.64 | % | 3.59 | % | 3.38 | % | 3.58 | % | 3.70 | % | 3.39 | % | ||||||||
| Expected long-term rate of return on plan assets | 5.10 | % | 5.20 | % | 5.20 | % | 3.90 | % | 4.60 | % | 4.40 | % | — | — | — | |||||||||||
| Rate of compensation increase | — | % | 3.00 | % | 3.00 | % | 3.50 | % | 3.50 | % | 3.50 | % | — | — | — | |||||||||||
Non-U.S. | Postretirement | |||||||||||||||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||
Discount rate | 3.01 | % | 3.95 | % | 3.28 | % | 1.42 | % | 1.92 | % | 2.08 | % | 3.06 | % | 3.95 | % | 3.26 | % | ||||||||||||||||||
Expected long-term rate of return on plan assets | 0 | % | 0 | % | 0 | % | 3.30 | % | 3.80 | % | 3.80 | % | 0 | % | 0 | % | 0 | % | ||||||||||||||||||
Rate of compensation increase | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 3.50 | % | 0 | % | 0 | % | 0 | % | ||||||||||||||||||
The discount rate is used to discount future benefit obligations back to today’s dollars. Our discount rates were determined based on high-quality fixed income investments. The resulting discount rates are consistent with the duration of plan liabilities. The CitigroupMercer Above Median Spot RateMean Yield Curve for high-quality corporate bonds is used in determining the discount rate for the U.S. Nonqualified Plan in 2020. The Mercer Yield Curve is used in determining the discount rate for the Non-U.S. Plans in 2020. Before 2019, the FTSE (formerly known as Citigroup) Above Median Spot rates for high-quality corporate bonds were used in determining the discount rate for the U.S. Plans. The iBoxx € Corporates AA 7-10 and iBoxx € Corporates AA 10+ Benchmark is used to determine the discount rate for the Italian Pension Plan. The expected return on assets assumption on the investment portfolios for the pension plans is based on the long-term expected returns for the investment mix of assets currently in the portfolio. Management uses historic return trends of the asset portfolio combined with recent market conditions to estimate the future rate of return.
The accumulated benefit obligations as of December 31 for all defined benefit plans are as follows:
| 2017 | 2016 | ||||||
| U.S. Pension Plans | $ | 1,414 | $ | 40,961 | |||
| U.K. Pension Plan | 11,131 | 10,265 | |||||
| German Pension Plan | 1,013 | 871 | |||||
2020 | 2019 | |||||||
U.S. Nonqualified Plan | $ | 1.2 | $ | 1.3 | ||||
U.K. Pension Plan | 12.2 | 10.4 | ||||||
German Pension Plan | 1.2 | 1.0 | ||||||
| Italian Pension Plan | 4.2 | 4.3 | ||||||
Information for our plans with an accumulated benefit obligation in excess of plan assets as of December 31 is as follows:
| 2017 | 2016 | ||||||
| Accumulated benefit obligation | $ | 2,427 | $ | 12,597 | |||
| Fair value of plan assets | — | 9,562 | |||||
2020 | 2019 | |||||||
Accumulated benefit obligation | $ | 6.6 | $ | 6.6 | ||||
Fair value of plan assets | 0 | 0 | ||||||
As of December 31,
(In thousands,Tables in millions, except shares and per share data)
Information for our plans with a projected benefit obligation in excess of plan assets as of December 31 is as follows:
| 2017 | 2016 | ||||||
| Projected benefit obligation | $ | 2,427 | $ | 12,794 | |||
| Fair value of plan assets | — | 9,562 | |||||
2020 | 2019 | |||||||
Projected benefit obligation | $ | 6.6 | $ | 6.5 | ||||
Fair value of plan assets | 0 | 0 | ||||||
As of December 31, 2017,2020 and 2019, the U.S. Nonqualified, the German Pension and the GermanItalian Pension Plans had a projected benefit obligation in excess of plan assets. As of December 31, 2016, the U.S. Nonqualified, the UK Pension and the German Pension Plans had a projected benefit obligation in excess of plan assets.
Assumed healthcare cost trend rates as of December 31 are as follows:
| 2017 | 2016 | ||||
| Healthcare cost trend rate assumption for the next year | 6.56 | % | 6.56 | % | |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.00 | % | 5.00 | % | |
| Year that the rate reaches the ultimate trend rate | 2032 | 2031 | |||
1-Percentage- Point Decrease | 1-Percentage- Point Increase | ||||||
| Effect on total of service and interest cost components | $ | (31 | ) | $ | 35 | ||
| Effect on postretirement benefit obligation | $ | (724 | ) | $ | 820 | ||
2020 | 2019 | |||||||
Healthcare cost trend rate assumption for the next year Pre-65 | 5.90 | % | 6.22 | % | ||||
| Healthcare cost trend rate assumption for the next year Post-65 | 6.20 | % | 6.22 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.50 | % | 5.00 | % | ||||
Year that the rate reaches the ultimate trend rate | 2037 | 2032 | ||||||
Summaries related to changes in benefit obligations and plan assets and to the funded status of our defined benefit and postretirement medical benefit plans are as follows:
Non-U.S. | Postretirement | |||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Change in benefit obligation: | ||||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 1.3 | $ | 1.3 | $ | 15.7 | $ | 15.0 | $ | 7.8 | $ | 8.6 | ||||||||||||
Service cost | 0 | 0 | 0 | 0 | 0.1 | 0 | ||||||||||||||||||
Interest cost | 0 | 0.1 | 0.2 | 0.3 | 0.2 | 0.3 | ||||||||||||||||||
Actuarial loss (gain) | 0 | 0 | 1.7 | 1.0 | (0.3 | ) | (0.1 | ) | ||||||||||||||||
Foreign exchange | 0 | 0 | 0.8 | 0.2 | 0 | 0 | ||||||||||||||||||
Benefits paid | (0.1 | ) | (0.1 | ) | (0.8 | ) | (0.8 | ) | (0.5 | ) | (1.0 | ) | ||||||||||||
Benefit obligation at end of year | $ | 1.2 | $ | 1.3 | $ | 17.6 | $ | 15.7 | $ | 7.3 | $ | 7.8 | ||||||||||||
Change in fair value of plan assets and net accrued liabilities: | ||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 0 | $ | 0 | $ | 12.2 | $ | 10.8 | $ | 0 | $ | 0 | ||||||||||||
Actual return on plan assets | 0 | 0 | 0.6 | 0.8 | 0 | 0 | ||||||||||||||||||
Employer contributions | 0.1 | 0.1 | 0.9 | 1.0 | 0.5 | 1.0 | ||||||||||||||||||
Foreign exchange | 0 | 0 | 0.4 | 0.4 | 0 | 0 | ||||||||||||||||||
Benefits paid | (0.1 | ) | (0.1 | ) | (0.8 | ) | (0.8 | ) | (0.5 | ) | (1.0 | ) | ||||||||||||
Fair value of plan assets at end of year | 0 | 0 | 13.3 | 12.2 | 0 | 0 | ||||||||||||||||||
Funded status at end of year | $ | (1.2 | ) | $ | (1.3 | ) | $ | (4.3 | ) | $ | (3.5 | ) | $ | (7.3 | ) | $ | (7.8 | ) | ||||||
Amounts recognized in the Consolidated Balance Sheets consist of: | ||||||||||||||||||||||||
Noncurrent Other Assets | $ | 0 | $ | 0 | $ | 1.1 | $ | 1.8 | $ | 0 | $ | 0 | ||||||||||||
Current Liabilities | (0.1 | ) | (0.2 | ) | 0 | 0 | (0.7 | ) | (0.7 | ) | ||||||||||||||
Long-Term Liabilities | (1.1 | ) | (1.1 | ) | (5.4 | ) | (5.3 | ) | (6.6 | ) | (7.1 | ) | ||||||||||||
Net accrued liability | $ | (1.2 | ) | $ | (1.3 | ) | $ | (4.3 | ) | $ | (3.5 | ) | $ | (7.3 | ) | $ | (7.8 | ) | ||||||
Amounts recognized in Accumulated Other Comprehensive Loss consist of: | ||||||||||||||||||||||||
Prior service cost | $ | 0 | $ | 0 | $ | (0.2 | ) | $ | (0.1 | ) | $ | 0 | $ | 0 | ||||||||||
Net actuarial (loss) gain | (0.9 | ) | (0.9 | ) | (2.0 | ) | (0.4 | ) | 0.8 | 0.4 | ||||||||||||||
Accumulated Other Comprehensive (Loss) Income | $ | (0.9 | ) | $ | (0.9 | ) | $ | (2.2 | ) | $ | (0.5 | ) | $ | 0.8 | $ | 0.4 | ||||||||
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||
| Benefit obligation at beginning of year | $ | 40,961 | $ | 41,774 | $ | 11,136 | $ | 10,883 | $ | 10,540 | $ | 11,144 | |||||||||||
| Service cost | — | 354 | 132 | 103 | 60 | 76 | |||||||||||||||||
| Interest cost | 1,538 | 1,659 | 298 | 358 | 363 | 396 | |||||||||||||||||
| Plan participants' contributions | — | — | 14 | 14 | — | — | |||||||||||||||||
| Actuarial loss (gain) | 1,811 | 690 | 327 | 1,939 | (524 | ) | 6 | ||||||||||||||||
| Foreign exchange | — | — | 1,097 | (1,852 | ) | — | — | ||||||||||||||||
| Benefits paid | (1,950 | ) | (3,516 | ) | (860 | ) | (309 | ) | (835 | ) | (1,082 | ) | |||||||||||
| Settlement | (40,946 | ) | — | — | — | — | — | ||||||||||||||||
| Benefit obligation at end of year | $ | 1,414 | $ | 40,961 | $ | 12,144 | $ | 11,136 | $ | 9,604 | $ | 10,540 | |||||||||||
| Change in fair value of plan assets and net accrued liabilities: | |||||||||||||||||||||||
| Fair value of plan assets at beginning of year | $ | 46,389 | $ | 47,201 | $ | 9,562 | $ | 10,691 | $ | — | $ | — | |||||||||||
| Actual return on plan assets | 2,536 | 2,457 | 1,189 | 673 | — | — | |||||||||||||||||
| Employer contributions | 276 | 247 | 313 | 303 | 835 | 1,082 | |||||||||||||||||
| Plan participants' contributions | — | — | 14 | 14 | — | — | |||||||||||||||||
| Excess assets transferred to Defined Contribution Plan | (6,305 | ) | — | — | — | — | — | ||||||||||||||||
| Foreign exchange | — | — | 945 | (1,810 | ) | — | — | ||||||||||||||||
| Benefits paid | (1,950 | ) | (3,516 | ) | (860 | ) | (309 | ) | (835 | ) | (1,082 | ) | |||||||||||
| Settlement | (40,946 | ) | — | — | — | — | — | ||||||||||||||||
| Fair value of plan assets at end of year | — | 46,389 | 11,163 | 9,562 | — | — | |||||||||||||||||
| Funded status at end of year | $ | (1,414 | ) | $ | 5,428 | $ | (981 | ) | $ | (1,574 | ) | $ | (9,604 | ) | $ | (10,540 | ) | ||||||
| Amounts recognized in the Consolidated Balance Sheets consist of: | |||||||||||||||||||||||
| Noncurrent Other Assets | $ | — | $ | 7,087 | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Current Liabilities | (140 | ) | (239 | ) | (36 | ) | (30 | ) | (771 | ) | (828 | ) | |||||||||||
| Long-Term Liabilities | (1,274 | ) | (1,420 | ) | (945 | ) | (1,544 | ) | (8,833 | ) | (9,712 | ) | |||||||||||
| Net accrued asset (liability) | $ | (1,414 | ) | $ | 5,428 | $ | (981 | ) | $ | (1,574 | ) | $ | (9,604 | ) | $ | (10,540 | ) | ||||||
| Amounts recognized in Accumulated Other Comprehensive Loss consist of: | |||||||||||||||||||||||
| Net actuarial loss | (915 | ) | (5,720 | ) | (1,245 | ) | (1,802 | ) | (41 | ) | (566 | ) | |||||||||||
| Accumulated Other Comprehensive Loss | $ | (915 | ) | $ | (5,720 | ) | $ | (1,245 | ) | $ | (1,802 | ) | $ | (41 | ) | $ | (566 | ) | |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
The components of the net periodic benefit cost (credit) cost for the three years ended December 31 were as follows:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||
| Service cost | $ | — | $ | 354 | $ | 480 | $ | 132 | $ | 103 | $ | 153 | $ | 60 | $ | 76 | $ | 96 | |||||||||||||||||
| Interest cost | 1,538 | 1,659 | 1,711 | 298 | 358 | 396 | 363 | 396 | 393 | ||||||||||||||||||||||||||
| Expected return on plan assets | (2,336 | ) | (2,400 | ) | (2,613 | ) | (379 | ) | (452 | ) | (433 | ) | — | — | — | ||||||||||||||||||||
| Amortization of net actuarial loss | 43 | 41 | 835 | 74 | 27 | 54 | — | — | — | ||||||||||||||||||||||||||
| Amortization of prior service cost | — | 41 | 42 | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Foreign currency | — | — | — | (1 | ) | 97 | (35 | ) | — | — | — | ||||||||||||||||||||||||
| Net periodic benefit (credit) cost | (755 | ) | (305 | ) | 455 | 124 | 133 | 135 | 423 | 472 | 489 | ||||||||||||||||||||||||
| Curtailment charge | — | — | 25 | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Settlement charge | 6,373 | — | 225 | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Net benefit cost (credit) | $ | 5,618 | $ | (305 | ) | $ | 705 | $ | 124 | $ | 133 | $ | 135 | $ | 423 | $ | 472 | $ | 489 | ||||||||||||||||
Non-U.S. | Postretirement | |||||||||||||||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||
Service cost | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0.1 | $ | 0.1 | $ | 0 | $ | 0.1 | ||||||||||||||||||
Interest cost | 0 | 0.1 | 0 | 0.2 | 0.3 | 0.3 | 0.2 | 0.3 | 0.3 | |||||||||||||||||||||||||||
Expected return on plan assets | 0 | 0 | 0 | (0.3 | ) | (0.4 | ) | (0.4 | ) | 0 | 0 | 0 | ||||||||||||||||||||||||
Amortization of net actuarial loss (gain) | 0.1 | 0 | 0.1 | 0 | 0 | 0 | 0 | (0.1 | ) | 0 | ||||||||||||||||||||||||||
Net periodic benefit cost (credit) | 0.1 | 0.1 | 0.1 | (0.1 | ) | (0.1 | ) | 0 | 0.3 | 0.2 | 0.4 | |||||||||||||||||||||||||
Curtailment | 0 | 0 | 0 | 0 | 0 | (0.1 | ) | 0 | 0 | 0 | ||||||||||||||||||||||||||
Net benefit cost (credit) | $ | 0.1 | $ | 0.1 | $ | 0.1 | $ | (0.1 | ) | $ | (0.1 | ) | $ | (0.1 | ) | $ | 0.3 | $ | 0.2 | $ | 0.4 | |||||||||||||||
The changes in Accumulated Other Comprehensive Loss for the three years ended December 31 were as follows:
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||
| Net actuarial loss (gain) | $ | 1,611 | $ | 633 | $ | 195 | $ | (465 | ) | $ | 1,718 | $ | (1,517 | ) | $ | (524 | ) | $ | 6 | $ | (1,618 | ) | |||||||||||||
| Amortization of prior service cost | — | (41 | ) | (67 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||
| Amortization of net actuarial loss | (43 | ) | (41 | ) | (1,060 | ) | (74 | ) | (27 | ) | (54 | ) | — | — | — | ||||||||||||||||||||
| Settlement Charge | (6,373 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Total recognized in other comprehensive (income) loss | $ | (4,805 | ) | $ | 551 | $ | (932 | ) | $ | (539 | ) | $ | 1,691 | $ | (1,571 | ) | $ | (524 | ) | $ | 6 | $ | (1,618 | ) | |||||||||||
| Total recognized in net benefit cost (credit) and other comprehensive (income) loss | $ | 813 | $ | 246 | $ | (227 | ) | $ | (415 | ) | $ | 1,824 | $ | (1,436 | ) | $ | (101 | ) | $ | 478 | $ | (1,129 | ) | ||||||||||||
Non-U.S. | Postretirement | |||||||||||||||||||||||||||||||||||
U.S. Nonqualified Plan | Pension Benefits | Medical Benefits | ||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||
Prior service cost | $ | 0 | $ | 0 | $ | 0 | $ | 0.1 | $ | 0 | $ | 0.1 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
Net actuarial loss (gain) | 0 | 0.1 | 0 | 1.6 | 0.4 | (1.2 | ) | (0.3 | ) | (0.1 | ) | (0.5 | ) | |||||||||||||||||||||||
Amortization of net actuarial (loss) gain | (0.1 | ) | 0 | (0.1 | ) | 0 | 0 | 0 | 0 | 0.1 | 0 | |||||||||||||||||||||||||
Total recognized in other comprehensive (income) loss | $ | (0.1 | ) | $ | 0.1 | $ | (0.1 | ) | $ | 1.7 | $ | 0.4 | $ | (1.1 | ) | $ | (0.3 | ) | $ | 0 | $ | (0.5 | ) | |||||||||||||
Total recognized in net benefit cost (credit) and other comprehensive loss (income) | $ | 0 | $ | 0.2 | $ | 0 | $ | 1.6 | $ | 0.3 | $ | (1.2 | ) | $ | 0 | $ | 0.2 | $ | (0.1 | ) | ||||||||||||||||
The following benefit payments, which reflect expected future service, are expected to be paid for our U.S. and Non-U.S. plans:
U.S. | Non-U.S. | Postretirement | |||||||||||
Nonqualified Plan | Pension Benefits | Medical Benefits | |||||||||||
| 2021 | $ | 0.2 | $ | 0.3 | $ | 0.7 | |||||||
| 2022 | 0.1 | 0.7 | 0.6 | ||||||||||
| 2023 | 0.1 | 0.8 | 0.6 | ||||||||||
| 2024 | 0.1 | 0.8 | 0.6 | ||||||||||
| 2025 | 0.1 | 0.8 | 0.6 | ||||||||||
| 2026 to 2030 | 0.4 | 4.0 | 2.5 | ||||||||||
Total | $ | 1.0 | $ | 7.4 | $ | 5.6 | |||||||
| U.S. Pension Benefits | Non-U.S. Pension Benefits | Postretirement Medical Benefits | |||||||||
| 2018 | $ | 140 | $ | 247 | $ | 771 | |||||
| 2019 | 133 | 254 | 803 | ||||||||
| 2020 | 132 | 261 | 849 | ||||||||
| 2021 | 124 | 269 | 751 | ||||||||
| 2022 | 117 | 278 | 741 | ||||||||
| 2023 to 2027 | 493 | 1,538 | 3,509 | ||||||||
| Total | $ | 1,139 | $ | 2,847 | $ | 7,424 | |||||
Pension Benefits | Postretirement Medical Benefits | ||||||
| Net actuarial loss | $ | 78 | $ | — | |||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
14. | Shareholders' Equity |
Authorized Shares
We are authorized to issue an aggregate of
60,000,000 shares, all of which are designated as Common Stock having a par value ofAccumulated Other Comprehensive Loss
Components of Accumulated Other Comprehensive Loss, net of tax, within the Consolidated Balance Sheets and Consolidated Statements of Shareholders' Equity as of December 31 are as follows:
| 2017 | 2016 | 2015 | |||||||||
| Foreign currency translation adjustments | $ | (15,778 | ) | $ | (44,444 | ) | $ | (44,585 | ) | ||
| Pension and retiree medical benefits | (1,610 | ) | (5,391 | ) | (3,647 | ) | |||||
| Cash flow hedge | (4,935 | ) | (88 | ) | 103 | ||||||
| Total Accumulated Other Comprehensive Loss | $ | (22,323 | ) | $ | (49,923 | ) | $ | (48,129 | ) | ||
2020 | 2019 | 2018 | ||||||||||
Foreign currency translation adjustments | $ | (19.1 | ) | $ | (36.3 | ) | $ | (31.9 | ) | |||
Pension and postretirement medical benefits | (1.7 | ) | (0.7 | ) | (0.3 | ) | ||||||
Cash flow hedge | 0.7 | (1.5 | ) | (5.0 | ) | |||||||
Total Accumulated Other Comprehensive Loss | $ | (20.1 | ) | $ | (38.5 | ) | $ | (37.2 | ) | |||
The changes in components of Accumulated Other Comprehensive Loss, net of tax, are as follows:
| Foreign Currency Translation Adjustments | Pension and Postretirement Benefits | Cash Flow Hedge | Total | ||||||||||||
| December 31, 2016 | $ | (44,444 | ) | $ | (5,391 | ) | $ | (88 | ) | $ | (49,923 | ) | |||
| Other comprehensive income (loss) before reclassifications | 28,666 | (300 | ) | (16,419 | ) | 11,947 | |||||||||
| Amounts reclassified from Accumulated Other Comprehensive Loss | — | 4,081 | 11,572 | 15,653 | |||||||||||
| Net current period other comprehensive income (loss) | 28,666 | 3,781 | (4,847 | ) | 27,600 | ||||||||||
| December 31, 2017 | $ | (15,778 | ) | $ | (1,610 | ) | $ | (4,935 | ) | $ | (22,323 | ) | |||
Foreign Currency Translation Adjustments | Pension and Postretirement Medical Benefits | Cash Flow Hedge | Total | |||||||||||||
December 31, 2019 | $ | (36.3 | ) | $ | (0.7 | ) | $ | (1.5 | ) | $ | (38.5 | ) | ||||
Other comprehensive income (loss) before reclassifications | 17.2 | (1.0 | ) | (7.5 | ) | 8.7 | ||||||||||
Amounts reclassified from Accumulated Other Comprehensive Loss | 0 | 0 | 9.7 | 9.7 | ||||||||||||
Net current period other comprehensive income (loss) | 17.2 | (1.0 | ) | 2.2 | 18.4 | |||||||||||
December 31, 2020 | $ | (19.1 | ) | $ | (1.7 | ) | $ | 0.7 | $ | (20.1 | ) | |||||
Accumulated Other Comprehensive Loss associated with pension and postretirement benefits and cash flow hedges areis included in Notes 13 and 11, respectively.
15. | Leases | |
We lease office and warehouse facilities, vehicles and office equipment under the operating lease agreements, which include both monthly and longer-term arrangements. Leases with initial terms of one year or more expire at various dates through 2025 and generally provide for extension options. Rent expense under the leasing agreements (exclusive of real estate taxes, insurance and other expenses payable under the leases) amounted to $21,566, $18,640 and
| 2018 | $ | 14,083 | |
| 2019 | 9,540 | ||
| 2020 | 5,721 | ||
| 2021 | 2,995 | ||
| 2022 | 1,996 | ||
| Thereafter | 2,596 | ||
| Total | $ | 36,931 | |
Certain operating leases for vehicles contain residual value guarantee provisions, which would become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. TheAs of December 31, 2020, of those leases that contain residual value guarantees, the aggregate residual value at lease expiration of those leases is $14,052,was $10.6 million, of which we have guaranteed $11,409. As$8.2 million.
The lease assets and liabilities as of December 31 2017, we haveare as follows:
| Leases | Classification | 2020 | 2019 | |||||||
Assets | ||||||||||
Operating lease assets | Operating Lease Assets | $ | 44.5 | $ | 46.6 | |||||
Finance lease assets | Property, Plant and Equipment(a) | 0.1 | 0.3 | |||||||
Total leased assets | $ | 44.6 | $ | 46.9 | ||||||
Liabilities | ||||||||||
Current: | ||||||||||
Operating | Other Current Liabilities | $ | 16.3 | $ | 16.7 | |||||
Finance | Current Portion of Long-term Debt | 0.1 | 0.2 | |||||||
Noncurrent: | ||||||||||
Operating | Long-term Operating Lease Liabilities | 28.7 | 30.3 | |||||||
Finance | Long-term Debt | 0 | 0 | |||||||
Total lease liabilities | $ | 45.1 | $ | 47.2 | ||||||
(a) Finance lease assets are recorded a liabilitynet of accumulated amortization of $0.2 million and $0.5 million as of December 31, 2020 and December 31, 2019, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
The lease cost for the estimated end-of-term lossthree years ended December 31 was as follows:
| Lease Cost | 2020 | 2019 | 2018 | |||||||||
Operating lease cost | $ | 25.1 | (a) | $ | 27.5 | (a) | $ | 23.3 | ||||
Finance lease cost(b) | 0.2 | 0.3 | 0.4 | |||||||||
Total lease cost | $ | 25.3 | $ | 27.8 | $ | 23.7 |
(a) | Includes short-term lease costs of $3.5 million and $3.1 million and variable lease costs of $1.6 million and $2.4 million for the years ended December 31, 2020 and December 31, 2019, respectively. |
(b) | Includes amortization of leased assets and interest on lease liabilities. |
The maturity of lease liabilities as of December 31, 2020 was as follows:
| Maturity of Lease Liabilities | Operating Leases | Finance Leases | Total | |||||||||
| 2021 | $ | 17.6 | $ | 0.1 | $ | 17.7 | ||||||
| 2022 | 13.0 | 0 | 13.0 | |||||||||
| 2023 | 9.4 | 0 | 9.4 | |||||||||
| 2024 | 5.0 | 0 | 5.0 | |||||||||
| 2025 | 2.1 | 0 | 2.1 | |||||||||
| Thereafter | 0.9 | 0 | 0.9 | |||||||||
Total lease payments | $ | 48.0 | $ | 0.1 | $ | 48.1 | ||||||
| Less: Interest | (3.0 | ) | 0 | (3.0 | ) | |||||||
Present value of lease liabilities | $ | 45.0 | $ | 0.1 | $ | 45.1 |
The lease term and discount rate as of December 31 were as follows:
| Lease Term and Discount Rate | 2020 | 2019 | ||||||
Weighted-average remaining lease term (years): | ||||||||
| Operating leases | 3.4 | 3.7 | ||||||
| Finance leases | 1.0 | 1.5 | ||||||
Weighted-average discount rate: | ||||||||
| Operating leases | 3.8 | % | 3.7 | % | ||||
| Finance leases | 2.5 | % | 2.5 | % | ||||
Other information related to this residual value guarantee of $509cash paid related to lease liabilities and lease assets obtained for certain vehicles within our fleet. Our fleet also contains vehicles we estimate will settle at a gain. Gains on these vehicles will be recognized at the end of the lease term.years ended December 31 was as follows:
| Other Information | 2020 | 2019 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $19.7 | $22.7 | ||||||
| Financing cash flows from finance leases | 0.1 | 0.3 | ||||||
| Lease assets obtained in exchange for new finance lease liabilities | 0 | 0.1 | ||||||
| Lease assets obtained in exchange for new operating lease liabilities | 14.8 | 26.4 | ||||||
16. | Commitments and Contingencies |
In the ordinary course of business, we may become liable with respect to pending and threatened litigation, tax, environmental and other matters. While the ultimate results of current claims, investigations and lawsuits involving us are unknown at this time, we do not expect that these matters will have a material adverse effect on our consolidated financial position or results of operations. Legal costs associated with such matters are expensed as incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
17. | Income Taxes |
On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act)of 2017 (the "Tax Act") was enacted on December 22, 2017, resulting in significantsigned into law. The Tax Act made broad and complex changes to the U.S. tax code which included a lowering of the U.S. federal corporate income tax system. These changes includerate from 35% to 21% effective January 1, 2018, accelerated expensing of qualified capital investments for a federal statutory rate reduction from 35% to 21%, the elimination or reductionspecific period, limitations of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The Tax Act also transitions international taxationcompensation, and a transition from a worldwide system to a modified territorial tax system, and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiariesrequired companies to U.S. taxation as global intangible low-taxed income. These changes are effective beginning in 2018. The 2017 Tax Act also includespay a one-timeone-time transition tax on certain unrepatriated earnings from foreign subsidiaries.
The accounting for the effectsremeasurement of athe deferred taxes and transition tax law changewas finalized in the periodthird quarter of enactment, however, shortly after2018. Adjustments to the enactmentprovisional amounts were not material to the consolidated financial statements. The accounting for the income tax effects of the Tax Act the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared or analyzed in reasonable detail towas complete its accountingas of December 31, 2018.
Profit (loss) before income taxes for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. We have made a reasonable estimate of the impact of the Tax Act and recorded discrete items in our 2017 provisional income tax expense of $2,355 which reflects an estimated reduction in our deferred income tax liabilities of $1,993 as a result of the maximum federal rate decrease to 21% from 35% and an estimated tax charge of $362 for the effects of one-time transition tax on cash and cash equivalent balances related to accumulated earnings associated with our international operations. We are continuing to gather additional information related to these estimates in order to more precisely compute the remeasurement of deferred taxes and the impact of the transition tax.
| 2017 | 2016 | 2015 | |||||||||
| U.S. operations | $ | 7,465 | $ | 54,018 | $ | 51,189 | |||||
| Foreign operations | (8,757 | ) | 12,473 | (765 | ) | ||||||
| Total | $ | (1,292 | ) | $ | 66,491 | $ | 50,424 | ||||
2020 | 2019 | 2018 | ||||||||||
U.S. operations | $ | 46.6 | $ | 50.1 | $ | 23.9 | ||||||
Foreign operations | (5.5 | ) | 3.9 | 11.9 | ||||||||
Total | $ | 41.1 | $ | 54.0 | $ | 35.8 | ||||||
Income tax expense (benefit) for the three years ended December 31 was as follows:
| 2017 | 2016 | 2015 | |||||||||
| Current: | |||||||||||
| Federal | $ | 2,590 | $ | 15,962 | $ | 15,117 | |||||
| Foreign | 8,701 | 3,035 | 3,992 | ||||||||
| State | 812 | 1,859 | 1,685 | ||||||||
| $ | 12,103 | $ | 20,856 | $ | 20,794 | ||||||
| Deferred: | |||||||||||
| Federal | $ | 1,640 | $ | (472 | ) | $ | (481 | ) | |||
| Foreign | (8,699 | ) | (434 | ) | (1,888 | ) | |||||
| State | (131 | ) | (73 | ) | (89 | ) | |||||
| $ | (7,190 | ) | $ | (979 | ) | $ | (2,458 | ) | |||
| Total: | |||||||||||
| Federal | $ | 4,230 | $ | 15,490 | $ | 14,636 | |||||
| Foreign | 2 | 2,601 | 2,104 | ||||||||
| State | 681 | 1,786 | 1,596 | ||||||||
| Total Income Tax Expense | $ | 4,913 | $ | 19,877 | $ | 18,336 | |||||
2020 | 2019 | 2018 | ||||||||||
Current: | ||||||||||||
Federal | $ | 4.2 | $ | 9.6 | $ | 3.7 | ||||||
Foreign | 3.8 | 5.6 | 7.0 | |||||||||
State | 1.8 | 2.1 | 1.0 | |||||||||
| $ | 9.8 | $ | 17.3 | $ | 11.7 | |||||||
Deferred: | ||||||||||||
Federal | $ | 4.4 | $ | (2.4 | ) | $ | (3.1 | ) | ||||
Foreign | (6.9 | ) | (6.7 | ) | (6.0 | ) | ||||||
State | 0.1 | (0.1 | ) | (0.3 | ) | |||||||
| $ | (2.4 | ) | $ | (9.2 | ) | $ | (9.4 | ) | ||||
Total: | ||||||||||||
Federal | $ | 8.6 | $ | 7.2 | $ | 0.6 | ||||||
Foreign | (3.1 | ) | (1.1 | ) | 1.0 | |||||||
State | 1.9 | 2.0 | 0.7 | |||||||||
Total Income Tax Expense | $ | 7.4 | $ | 8.1 | $ | 2.3 | ||||||
In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial and that position has not changed following incurring the transition tax under the Tax Act. Noimmaterial. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our approximately $68.8 million of undistributed earnings from foreign investmentssubsidiaries to the United States.
| Amount | Carryforward Period | ||||
| Netherlands | $ | 23,733 | 9 years | ||
| Germany | 12,068 | Unlimited | |||
| Sweden | 1,586 | Unlimited | |||
| Norway | 655 | Unlimited | |||
| Spain | 4,555 | Unlimited | |||
| Total | $ | 42,597 | |||
Our effective income tax rate varied from the U.S. federal statutory tax rate for the three years ended December 31 as follows:
2020 | 2019 | 2018 | ||||||||||
Tax at statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
(Decreases) increases in the tax rate from: | ||||||||||||
State and local taxes, net of federal benefit | 3.5 | 1.9 | 1.4 | |||||||||
Effect of foreign operations | (3.7 | ) | 3.5 | (4.3 | ) | |||||||
Transaction costs | 0 | 0.1 | (4.2 | ) | ||||||||
Effect of 2017 deferred rate change | 0 | 0 | (1.0 | ) | ||||||||
Transition Tax | 0 | 0 | (1.0 | ) | ||||||||
Effect of changes in valuation allowances | 0.5 | (9.7 | ) | 6.6 | ||||||||
Domestic production activities deduction | 0 | (0.3 | ) | 0.4 | ||||||||
Executive compensation over $1 million | 2.1 | 2.5 | 1.0 | |||||||||
Share-based payments | (0.9 | ) | (2.0 | ) | (5.7 | ) | ||||||
Research & Development credit | (3.3 | ) | (1.9 | ) | (3.6 | ) | ||||||
Other, net | (1.3 | ) | 0 | (4.2 | ) | |||||||
Effective income tax rate | 17.9 | % | 15.1 | % | 6.4 | % | ||||||
| 2017 | 2016 | 2015 | ||||||
| Tax at statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
| (Decreases) increases in the tax rate from: | ||||||||
| State and local taxes, net of federal benefit | (21.1 | ) | 1.7 | 2.2 | ||||
| Effect of foreign operations | (70.8 | ) | (5.5 | ) | (5.1 | ) | ||
| Transaction costs | (226.3 | ) | — | — | ||||
| Effect of 2018 deferred rate change | (154.3 | ) | — | — | ||||
| Transition Tax | (28.0 | ) | — | — | ||||
| Impairment of Long-Lived Assets | — | — | 7.0 | |||||
| Effect of changes in valuation allowances | (126.5 | ) | 1.9 | 1.5 | ||||
| Domestic production activities deduction | 28.3 | (2.2 | ) | (2.7 | ) | |||
| Share-based payments | 90.4 | — | — | |||||
| Research & Development credit | 82.9 | (1.3 | ) | (1.7 | ) | |||
| Other, net | 10.2 | 0.3 | 0.2 | |||||
| Effective income tax rate | (380.2 | )% | 29.9 | % | 36.4 | % | ||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
Deferred tax assets and liabilities were comprised of the following as of December 31:
| 2017 | 2016 | ||||||
| Deferred Tax Assets: | |||||||
| Inventories, principally due to changes in inventory reserves | $ | 4,757 | $ | 332 | |||
| Employee wages and benefits, principally due to accruals for financial reporting purposes | 11,031 | 14,723 | |||||
| Warranty reserves accrued for financial reporting purposes | 2,578 | 3,617 | |||||
| Receivables, principally due to allowance for doubtful accounts and tax accounting method for equipment rentals | 2,138 | 1,413 | |||||
| Tax loss carryforwards | 11,383 | 7,821 | |||||
| Tax credit carryforwards | 1,575 | 1,228 | |||||
| Other | 3,630 | 2,126 | |||||
| Gross Deferred Tax Assets | $ | 37,092 | $ | 31,260 | |||
| Less: valuation allowance | (9,691 | ) | (6,865 | ) | |||
| Total Net Deferred Tax Assets | $ | 27,401 | $ | 24,395 | |||
| Deferred Tax Liabilities: | |||||||
| Property, Plant and Equipment, principally due to differences in depreciation and related gains | 9,042 | 6,947 | |||||
| Goodwill and Intangible Assets | 60,450 | 4,180 | |||||
| Total Deferred Tax Liabilities | $ | 69,492 | $ | 11,127 | |||
| Net Deferred Tax (Liabilities) Assets | $ | (42,091 | ) | $ | 13,268 | ||
2020 | 2019 | |||||||
Deferred Tax Assets: | ||||||||
Inventory costing and valuation methods | $ | 4.5 | $ | 4.6 | ||||
Employee wages and benefits, principally due to accruals for financial reporting purposes | 14.0 | 13.7 | ||||||
Warranty reserves accrued for financial reporting purposes | 2.3 | 2.5 | ||||||
Receivables, principally due to allowance for doubtful accounts and tax accounting method for equipment rentals | 2.3 | 1.9 | ||||||
Operating lease liability | 11.2 | 11.4 | ||||||
Tax loss carryforwards | 9.6 | 6.6 | ||||||
Tax credit carryforwards | 3.6 | 3.2 | ||||||
Other | 2.5 | 3.2 | ||||||
Gross Deferred Tax Assets | $ | 50.0 | $ | 47.1 | ||||
Less: valuation allowance | (7.5 | ) | (6.2 | ) | ||||
Total Net Deferred Tax Assets | $ | 42.5 | $ | 40.9 | ||||
Deferred Tax Liabilities: | ||||||||
Lease right of use assets | $ | 11.2 | $ | 11.4 | ||||
Property, Plant and Equipment, principally due to differences in depreciation and related gains | 14.0 | 10.2 | ||||||
Goodwill and Intangible Assets | 41.5 | 43.4 | ||||||
Total Deferred Tax Liabilities | $ | 66.7 | $ | 65.0 | ||||
Net Deferred Tax Liabilities | $ | (24.2 | ) | $ | (24.1 | ) | ||
Tax credit carryforwards consist of $2.2 million U.S. federal and state tax credits and $1.4 million of Netherlands tax credits. We have non-U.S. cumulative tax losses of $40.9 million in various countries. Cumulative losses can be used to offset the income tax liabilities on future income in these countries. $18.9 million of these losses have unlimited carryforward periods. $22.0 million of these losses have a limited carryforward period which must be utilized during 2021 to 2028.
The valuation allowance at as of December 31, 20172020 principally applies to the NetherlandsDutch net operating loss and tax losscredit carryforwards, and state tax credit carryforwards that, in the opinion of management, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance will reduce income tax expense.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| 2017 | 2016 | ||||||
| Balance at January 1, | $ | 2,477 | $ | 2,326 | |||
| Increases as a result of tax positions taken during the current year | 329 | 545 | |||||
| Increase related to prior period tax positions of acquired entities | 236 | — | |||||
| Decreases relating to settlement with tax authorities | (68 | ) | (6 | ) | |||
| Reductions as a result of a lapse of the applicable statute of limitations | (770 | ) | (523 | ) | |||
| Increases as a result of foreign currency fluctuations | 28 | 135 | |||||
| Balance at December 31, | $ | 2,232 | $ | 2,477 | |||
2020 | 2019 | |||||||
Balance at January 1 | $ | 7.5 | $ | 5.6 | ||||
Increases as a result of tax positions taken during a prior period | 0.3 | 0.1 | ||||||
Increases as a result of tax positions taken during the current year | 0.4 | 0.5 | ||||||
Increase related to prior period tax positions of acquired entities | 0 | 2.5 | ||||||
Decreases relating to settlement with tax authorities | (0.8 | ) | (0.1 | ) | ||||
Reductions as a result of a lapse of the applicable statute of limitations | (1.4 | ) | (1.0 | ) | ||||
Increases as a result of foreign currency fluctuations | 0.4 | (0.1 | ) | |||||
Balance at December 31 | $ | 6.4 | $ | 7.5 | ||||
Included in the balance of unrecognized tax benefits at
We recognize potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. In addition to the liability of $2,232$6.4 million and $2,477$7.5 million for unrecognized tax benefits as of
We and our subsidiaries are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are generally no longer subject to U.S. federal tax examinations for taxable years before 20142018 and, with limited exceptions, state and foreign income tax examinations for taxable years before 2013.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands,Tables in millions, except shares and per share data)
18. | Share-Based Compensation |
We have fourfive plans under which we have awarded share-based compensation grants: The 1997 Non-Employee Directors Option Plan ("("1997 Plan"), which provided for stock option grants to our non-employee Directors, the 2007 Stock Incentive Plan (“(“2007 Plan”), the Amended and Restated 2010 Stock Incentive Plan, as Amended (“(“2010 Plan”), the 2017 Stock Incentive Plan ("2017 Plan") and the 20172020 Stock Incentive Plan ("2017("2020 Plan"), which were adopted as a continuing step toward aggregating our equity compensation programs to reduce the complexity of our equity compensation programs.
The 2010 Plan, originally approved by our shareholders on April 28, 2010 and amended and restated by our shareholders on April 25, 2012, terminated our rights to grant awards under the 2007 Plan; however, any awards granted under the 2007 or 2010 Plans that do not result in the issuance of shares of Common Stock may again be used for an award under the 2010 Plan. The 2010 Plan was amended and restated by our shareholders on April 24, 2013, increasing the number of shares available under the amended 2010 Plan from 1,500,000 shares to 2,600,000 shares.
The 2017 Plan approved by our shareholders on April 26, 2017 terminated our rights to grant awards under previous plans; however, any awards granted under previous plans that do not result in the issuance of shares of Common Stock may again be used for an award under the 2017 Plan. There were 1,200,000 shares made available under the approved 2017 Plan.
The 2020 Plan approved by our shareholders on April 29, 2020 terminated our rights to grant awards under previous plans; however, any awards granted under previous plans that do not result in the issuance of shares of Common Stock may again be used for an award under the 2020 Plan. There were 1,750,000 shares made available under the approved 2020 Plan.
As of December 31, 2017,2020, there were 742,8731,081,982 shares reserved for issuance under the 2007 Plan, the 2010 Plan and the 20102017 Plan for outstanding compensation awards. There were 1,155,1101,833,080 shares available for issuance under the 20172020 Plan for current and future equity awards as of December 31, 2017.2020. The Compensation Committee of the Board of Directors determines the number of shares awarded and the grant date, subject to the terms of our equity award policy.
We recognized total Share-Based Compensation Expense of $5,891, $3,875$6.0 million, $11.4 million and $8,222,$8.3 million, respectively, during the years ended 2017, 20162020, 2019 and 2015.2018. The total excess tax benefit recognized for share-based compensation arrangements during the years ended 2017, 20162020, 2019 and 20152018 was $1,168,
Stock Option Awards
We determined the fair value of our stock option awards using the Black-Scholes valuation model that uses the assumptions noted in the table below. The expected lifeterm selected for stock options granted during the year represents the period of time that the stock options are expected to be outstanding based on historical data of stock option holder exercise and termination behavior of similar grants. The risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatilities are based upon historical volatility of our stock over a period equal to the expected life of each stock option grant. Dividend yield is estimated over the expected life based on our dividend policy and historical dividends paid. To determine the amount of compensation cost to be recognized in each period, we account for forfeitures as they occur.
The following table illustrates the valuation assumptions used for the 2017, 20162020, 2019 and 20152018 grants:
| 2017 | 2016 | 2015 | |||
| Expected volatility | 25 - 26% | 29 - 32% | 32 - 36% | ||
| Weighted-average expected volatility | 26% | 32% | 36% | ||
| Expected dividend yield | 1.2 - 1.3% | 1.3 - 1.5% | 1.1 - 1.2% | ||
| Weighted-average expected dividend yield | 1.3% | 1.3% | 1.2% | ||
| Expected term, in years | 5 | 5 | 5 | ||
| Risk-free interest rate | 1.7 - 2.0% | 1.1 - 1.4% | 1.4 - 1.6% | ||
2020 | 2019 | 2018 | ||||||||||
Expected volatility | 27 - 32 | % | 26 - 27 | % | 25 | % | ||||||
Weighted-average expected volatility | 27 | % | 26 | % | 25 | % | ||||||
Expected dividend yield | 1.3 | % | 1.2 - 1.4 | % | 1.2 | % | ||||||
Weighted-average expected dividend yield | 1.3 | % | 1.2 | % | 1.2 | % | ||||||
Expected term, in years | 5 | 5 | 5 | |||||||||
Risk-free interest rate | 0.3 - 1.3 | % | 1.6 - 2.5 | % | 2.6 - 2.9 | % | ||||||
New stock option awards granted vest one-thirdone-third each year over a
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in certain foreign locations. There were no outstanding SARs as of December 31, 2017millions, except shares and no SARs were granted during 2017, 2016 or 2015.
The following table summarizes the activity during the year ended December 31, 20172020 for stock option awards:
| Shares | Weighted-Average Exercise Price | |||||
| Outstanding at beginning of year | 1,113,382 | $ | 42.34 | |||
| Granted | 224,985 | 72.85 | ||||
| Exercised | (159,792 | ) | 44.04 | |||
| Forfeited | (42,586 | ) | 63.98 | |||
| Expired | (381 | ) | 65.12 | |||
| Outstanding at end of year | 1,135,608 | $ | 47.47 | |||
| Exercisable at end of year | 766,583 | $ | 39.15 | |||
Shares | Weighted-Average Exercise Price | |||||||
Outstanding at beginning of year | 1,071,777 | $ | 60.01 | |||||
Granted | 76,251 | 81.20 | ||||||
Exercised | (110,595 | ) | 44.29 | |||||
Forfeited | (42,083 | ) | 70.83 | |||||
Expired | (4,687 | ) | $ | 68.01 | ||||
Outstanding at end of year | 990,663 | $ | 62.90 | |||||
Exercisable at end of year | 767,655 | $ | 61.04 | |||||
The weighted-average grant date fair value of stock options granted during the years ended December 31,
Restricted Share Awards
Restricted share awards for employees generally have a
three year vesting period from the effective date of the grant. Restricted share awards to non-employee directors vest upon a change of control or upon termination of service as a director occurring at least six months after grant date of the award so long as termination is for one of the following reasons: death; disability; retirement in accordance with Tennant policy (e.g., age, term limits, etc.); resignation at request of Board (other than for gross misconduct); resignation following at least six months’ advance notice; failure to be renominated (unless due to unwillingness to serve) or reelected by shareholders; or removal by shareholders. We use the closing share price the day before the grant date to determine the fair value of our restricted share awards. Expenses on these awards are recognized over the vesting period.The following table summarizes the activity during the year ended
December 31,| Shares | Weighted-Average Grant Date Fair Value | |||||
| Nonvested at beginning of year | 117,234 | $ | 47.62 | |||
| Granted | 20,284 | 73.06 | ||||
| Vested | (32,990 | ) | 44.36 | |||
| Forfeited | (4,739 | ) | 63.43 | |||
| Nonvested at end of year | 99,789 | $ | 53.11 | |||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Nonvested at beginning of year | 93,599 | $ | 54.27 | |||||
Granted | 17,348 | 81.07 | ||||||
Vested | (10,038 | ) | 73.20 | |||||
Forfeited | (6,866 | ) | 73.19 | |||||
Nonvested at end of year | 94,043 | $ | 55.81 | |||||
The total fair value of restricted shares vested during the years ended December 31, 2017, 20162020, 2019 and 20152018 was $1,463, $1,970$0.7 million, $1.0 million and $1,054,$1.0 million, respectively. As of December 31, 2017,2020, there was $1,585$1.2 million of total unrecognized compensation cost related to nonvested restricted shares which is expected to be recognized over a weighted-average period of 1.8 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and per share data)
Performance Share Awards
We grant performance share awards to key employees as a part of our long-term management compensation program. These awards are earned based upon achievement of certain financial performance targets over a three year period. The number of shares of common stock a participant receives will be increased (up to 200 percent of target levels) or reduced (down to zero)0) based on the level of achievement of the financial performance targets. We use the closing share price the day before the grant date to determine the fair value of our performance share awards. Expenses on these awards are recognized over a
The following table summarizes the activity during the year ended December 31, 20172020 for nonvested performance share awards:
| Shares | Weighted-Average Grant Date Fair Value | |||||
| Nonvested at beginning of year | 129,096 | $ | 59.30 | |||
| Granted | 45,792 | 72.84 | ||||
| Vested | (20,060 | ) | 61.80 | |||
| Forfeited | (31,804 | ) | 62.55 | |||
| Nonvested at end of year | 123,024 | $ | 63.09 | |||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Nonvested at beginning of year | 120,714 | $ | 67.45 | |||||
Granted | 55,142 | 76.66 | ||||||
| Vested | (29,595 | ) | 72.82 | |||||
Forfeited | (22,042 | ) | 70.72 | |||||
Nonvested at end of year | 124,219 | $ | 69.68 | |||||
NaN performance shares vested during the yearyears ended December 31, 2017
Restricted Stock Units
We grant restricted stock units to employees and non-employee directors, which generally vest within three years from the date of the grant. Vested restricted stock units are paid out in stock. We use the closing share price the day before the grant date to determine the fair value of our restricted stock units. Expenses on these awards are recognized on a straight linestraight-line basis over the vesting period of the award.
The following table summarizes the activity during the year ended December 31, 20172020 for nonvested restricted stock units:
| Shares | Weighted-Average Grant Date Fair Value | |||||
| Nonvested at beginning of year | 31,038 | $ | 60.47 | |||
| Granted | 30,750 | 68.92 | ||||
| Vested | (14,638 | ) | 65.74 | |||
| Forfeited | (4,025 | ) | 60.82 | |||
| Nonvested at end of year | 43,125 | $ | 64.67 | |||
Shares | Weighted-Average Grant Date Fair Value | |||||||
Nonvested at beginning of year | 103,287 | $ | 64.72 | |||||
Granted | 42,248 | 69.93 | ||||||
Vested | (37,389 | ) | 70.46 | |||||
Forfeited | (10,661 | ) | 63.11 | |||||
Nonvested at end of year | 97,485 | $ | 64.95 | |||||
The total fair value of shares vested during the years ended December 31, 20172020, 2019 and 20162018 was $962$2.6 million, $2.2 million, and $907,$0.9 million, respectively. As of December 31, 2017,2020, there was $1,743$2.3 million of total unrecognized compensation cost related to nonvested shares which is expected to be recognized over a weighted-average period of 1.31.4 years.
Share-Based Liabilities
As of December 31,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except shares and 2015, we paid out $45,
19. | Earnings Attributable to Tennant Company Per Share |
The computations of Basic and Diluted (Loss) Earnings Attributable to Tennant Company per Share for the years ended December 31 were as follows:
| 2017 | 2016 | 2015 | |||||||||
| Numerator: | |||||||||||
| Net (Loss) Earnings Attributable to Tennant Company | $ | (6,195 | ) | $ | 46,614 | $ | 32,088 | ||||
| Denominator: | |||||||||||
| Basic - Weighted Average Shares Outstanding | 17,695,390 | 17,523,267 | 18,015,151 | ||||||||
| Effect of dilutive securities | — | 452,916 | 478,296 | ||||||||
| Diluted - Weighted Average Shares Outstanding | 17,695,390 | 17,976,183 | 18,493,447 | ||||||||
| Basic (Loss) Earnings per Share | $ | (0.35 | ) | $ | 2.66 | $ | 1.78 | ||||
| Diluted (Loss) Earnings per Share | $ | (0.35 | ) | $ | 2.59 | $ | 1.74 | ||||
2020 | 2019 | 2018 | ||||||||||
Numerator: | ||||||||||||
Net Earnings Attributable to Tennant Company | $ | 33.7 | $ | 45.8 | $ | 33.4 | ||||||
Denominator: | ||||||||||||
Basic - Weighted Average Shares Outstanding | 18,349,724 | 18,118,486 | 17,940,438 | |||||||||
Effect of dilutive securities | 285,278 | 334,659 | 398,131 | |||||||||
Diluted - Weighted Average Shares Outstanding | 18,635,002 | 18,453,145 | 18,338,569 | |||||||||
| Basic Earnings per Share | $ | 1.84 | $ | 2.53 | $ | 1.86 | ||||||
Diluted Earnings per Share | $ | 1.81 | $ | 2.48 | $ | 1.82 | ||||||
Excluded from the dilutive securities shown above were options to purchase and shares to be paid out under share-based compensation plans of 711,212, 356,598610,118, 552,402 and
20. | Segment Reporting |
We are organized into four4 operating segments: North America; Latin America; Europe, Middle East, Africa; and Asia Pacific. We combine our North America and Latin America operating segments into the "Americas" for reporting net sales by geographic area. In accordance with the objective and basic principles of the applicable accounting guidance, we aggregate our operating segments into one1 reportable segment that consists of the design, manufacture and sale of products used primarily in the maintenance of nonresidential surfaces.
The following table presents Net Sales by geographic area for the threeyears ended December 31:
| 2017 | 2016 | 2015 | |||||||||
| Net Sales: | |||||||||||
| Americas | $ | 640,274 | $ | 607,026 | $ | 591,405 | |||||
| Europe, Middle East, Africa | 273,738 | 129,046 | 139,834 | ||||||||
| Asia Pacific | 89,054 | 72,500 | 80,560 | ||||||||
| Total | $ | 1,003,066 | $ | 808,572 | $ | 811,799 | |||||
| 2017 | 2016 | 2015 | |||||||||
| Long-lived assets: | |||||||||||
| Americas | $ | 132,659 | $ | 134,737 | $ | 110,842 | |||||
| Europe, Middle East, Africa | 422,338 | 19,606 | 11,100 | ||||||||
| Asia Pacific | 4,731 | 4,334 | 4,658 | ||||||||
| Total | $ | 559,728 | $ | 158,677 | $ | 126,600 | |||||
2020 | 2019 | 2018 | ||||||||||
Net Sales: | ||||||||||||
United States | $ | 546.2 | $ | 609.6 | $ | 579.8 | ||||||
Other Americas | 84.8 | 112.8 | 111.2 | |||||||||
Americas | 631.0 | 722.4 | 691.0 | |||||||||
Europe, Middle East, Africa | 278.2 | 307.6 | 335.6 | |||||||||
Asia Pacific | 91.8 | 107.6 | 96.9 | |||||||||
Total | $ | 1,001.0 | $ | 1,137.6 | $ | 1,123.5 | ||||||
Accounting policies of the operations in the various operating segments are the same as those described in Note 1. Net Sales are attributed to each operating segment based on the end user country and are net of intercompany sales. Information regarding sales to customers geographically located inApart from the United States is providedshown in
The following table presents long-lived assets by geographic area as of December 31:
2020 | 2019 | 2018 | ||||||||||
Long-lived assets: | ||||||||||||
United States | $ | 121.9 | $ | 114.5 | $ | 107.3 | ||||||
Other Americas | 14.7 | 12.8 | 11.3 | |||||||||
Americas | 136.6 | 127.3 | 118.6 | |||||||||
Italy | 321.5 | 325.2 | 355.5 | |||||||||
Other Europe, Middle East, Africa | 34.0 | 28.6 | 30.2 | |||||||||
Europe, Middle East, Africa | 355.5 | 353.8 | 385.7 | |||||||||
Asia Pacific | 37.5 | 36.6 | 4.1 | |||||||||
Total | $ | 529.6 | $ | 517.7 | $ | 508.4 | ||||||
Long-lived assets consist of Property, Plant and Equipment, Goodwill, Intangible Assets and certain other assets. Long-lived assets locatedApart from the United States and Italy shown in Italy totaled $393,917 as of the year ended December 31, 2017 as a result of our acquisition of IPC Group. We did not have long-lived assets located in Italy for 2016 and 2015. Theretable above, there are no other individual foreign locations which have long-lived assets which represent more than 10% of our consolidated long-lived assets.
On February 1, 2021, we closed on the sale of similar products and services forour Coatings business. We expect to record a gain on the years ended December 31:
| 2017 | 2016 | 2015 | |||||||||
| Net Sales: | |||||||||||
| Equipment | $ | 636,875 | $ | 491,075 | $ | 499,634 | |||||
| Parts and consumables | 202,452 | 173,632 | 175,697 | ||||||||
| Service and other | 132,332 | 114,719 | 112,622 | ||||||||
| Specialty surface coatings | 31,407 | 29,146 | 23,846 | ||||||||
| Total | $ | 1,003,066 | $ | 808,572 | $ | 811,799 | |||||
| 2017 | |||||||||||||||
| Q1 | Q2 | Q3 | Q4 | ||||||||||||
| Net Sales | $ | 191,059 | $ | 270,791 | $ | 261,921 | $ | 279,295 | |||||||
| Gross Profit | 79,736 | 104,554 | 104,604 | 115,527 | |||||||||||
| Net (Loss) Earnings Attributable to Tennant Company | (3,957 | ) | (2,591 | ) | 3,559 | (3,206 | ) | ||||||||
| Basic (Loss) Earnings Attributable to Tennant Company per Share | $ | (0.22 | ) | $ | (0.15 | ) | $ | 0.20 | $ | (0.18 | ) | ||||
| Diluted (Loss) Earnings Attributable to Tennant Company per Share | $ | (0.22 | ) | $ | (0.15 | ) | $ | 0.20 | $ | (0.18 | ) | ||||
| 2016 | |||||||||||||||
| Q1 | Q2 | Q3 | Q4 | ||||||||||||
| Net Sales | $ | 179,864 | $ | 216,828 | $ | 200,134 | $ | 211,746 | |||||||
| Gross Profit | 77,502 | 95,289 | 85,295 | 93,509 | |||||||||||
| Net Earnings Attributable to Tennant Company | 4,439 | 15,328 | 11,477 | 15,370 | |||||||||||
| Basic Earnings Attributable to Tennant Company per Share | $ | 0.25 | $ | 0.88 | $ | 0.66 | $ | 0.88 | |||||||
| Diluted Earnings Attributable to Tennant Company per Share | $ | 0.25 | $ | 0.85 | $ | 0.64 | $ | 0.85 | |||||||
| Condensed Consolidated Statement of Earnings | |||||||||||||||||||
| For the year ended December 31, 2017 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| Net Sales | $ | 454,703 | $ | 594,405 | $ | 471,559 | $ | (517,601 | ) | $ | 1,003,066 | ||||||||
| Cost of Sales | 311,897 | 488,972 | 317,151 | (519,375 | ) | 598,645 | |||||||||||||
| Gross Profit | 142,806 | 105,433 | 154,408 | 1,774 | 404,421 | ||||||||||||||
| Operating Expense: | |||||||||||||||||||
| Research and Development Expense | 27,219 | 315 | 4,479 | — | 32,013 | ||||||||||||||
| Selling and Administrative Expense | 116,388 | 78,516 | 150,460 | — | 345,364 | ||||||||||||||
| Total Operating Expense | 143,607 | 78,831 | 154,939 | — | 377,377 | ||||||||||||||
| (Loss) Profit from Operations | (801 | ) | 26,602 | (531 | ) | 1,774 | 27,044 | ||||||||||||
| Other Income (Expense): | |||||||||||||||||||
| Equity in Earnings of Affiliates | 12,754 | 2,004 | 28,855 | (43,613 | ) | — | |||||||||||||
| Interest Expense, Net | (22,659 | ) | — | (299 | ) | (31 | ) | (22,989 | ) | ||||||||||
| Intercompany Interest Income (Expense) | 12,519 | (5,776 | ) | (6,743 | ) | — | — | ||||||||||||
| Net Foreign Currency Transaction Gains (Losses) | 857 | — | (4,244 | ) | — | (3,387 | ) | ||||||||||||
| Other (Expense) Income, Net | (3,962 | ) | (736 | ) | 2,841 | (103 | ) | (1,960 | ) | ||||||||||
| Total Other (Expense) Income, Net | (491 | ) | (4,508 | ) | 20,410 | (43,747 | ) | (28,336 | ) | ||||||||||
| (Loss) Profit Before Income Taxes | (1,292 | ) | 22,094 | 19,879 | (41,973 | ) | (1,292 | ) | |||||||||||
| Income Tax Expense (Benefit) | 4,913 | 8,070 | (98 | ) | (7,972 | ) | 4,913 | ||||||||||||
| Net (Loss) Earnings Including Noncontrolling Interest | (6,205 | ) | 14,024 | 19,977 | (34,001 | ) | (6,205 | ) | |||||||||||
| Net Loss Attributable to Noncontrolling Interest | (10 | ) | — | (10 | ) | 10 | (10 | ) | |||||||||||
| Net (Loss) Earnings Attributable to Tennant Company | $ | (6,195 | ) | $ | 14,024 | $ | 19,987 | $ | (34,011 | ) | $ | (6,195 | ) | ||||||
| Condensed Consolidated Statement of Earnings | ||||||||||||||||||||
| For the year ended December 31, 2016 | ||||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | |||||||||||||||
| Net Sales | $ | 455,375 | $ | 587,815 | $ | 290,349 | $ | (524,967 | ) | $ | 808,572 | |||||||||
| Cost of Sales | 299,459 | 483,075 | 199,336 | (524,893 | ) | 456,977 | ||||||||||||||
| Gross Profit | 155,916 | 104,740 | 91,013 | (74 | ) | 351,595 | ||||||||||||||
| Operating Expense: | ||||||||||||||||||||
| Research and Development Expense | 32,378 | 429 | 1,931 | — | 34,738 | |||||||||||||||
| Selling and Administrative Expense | 95,189 | 74,643 | 78,378 | — | — | 248,210 | ||||||||||||||
| (Gain) Loss on Sale of Business | (82 | ) | — | 231 | — | 149 | ||||||||||||||
| Total Operating Expense | 127,485 | 75,072 | 80,540 | — | 283,097 | |||||||||||||||
| Profit from Operations | 28,431 | 29,668 | 10,473 | (74 | ) | 68,498 | ||||||||||||||
| Other Income (Expense): | ||||||||||||||||||||
| Equity in Earnings of Affiliates | 34,068 | 2,192 | — | (36,260 | ) | — | ||||||||||||||
| Interest (Expense) Income, Net | (1,204 | ) | — | 255 | — | (949 | ) | |||||||||||||
| Intercompany Interest Income (Expense) | 7,157 | (5,570 | ) | (1,587 | ) | — | — | |||||||||||||
| Net Foreign Currency Transaction Gains (Losses) | 648 | (652 | ) | (388 | ) | — | (392 | ) | ||||||||||||
| Other (Expense) Income, Net | (2,609 | ) | (573 | ) | 2,516 | — | (666 | ) | ||||||||||||
| Total Other Income (Expense), Net | 38,060 | (4,603 | ) | 796 | (36,260 | ) | (2,007 | ) | ||||||||||||
| Profit Before Income Taxes | 66,491 | 25,065 | 11,269 | (36,334 | ) | 66,491 | ||||||||||||||
| Income Tax Expense | 19,877 | 9,443 | 2,427 | (11,870 | ) | 19,877 | ||||||||||||||
| Net Earnings | $ | 46,614 | $ | 15,622 | $ | 8,842 | $ | (24,464 | ) | $ | 46,614 | |||||||||
| Condensed Consolidated Statement of Earnings | |||||||||||||||||||
| For the year ended December 31, 2015 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| Net Sales | $ | 480,418 | $ | 586,154 | $ | 306,506 | $ | (561,279 | ) | $ | 811,799 | ||||||||
| Cost of Sales | 320,620 | 489,203 | 213,085 | (560,169 | ) | 462,739 | |||||||||||||
| Gross Profit | 159,798 | 96,951 | 93,421 | (1,110 | ) | 349,060 | |||||||||||||
| Operating Expense: | |||||||||||||||||||
| Research and Development Expense | 29,888 | 389 | 2,138 | — | 32,415 | ||||||||||||||
| Selling and Administrative Expense | 97,301 | 72,954 | 82,015 | — | 252,270 | ||||||||||||||
| Impairment of Long-Lived Assets | — | — | 11,199 | — | 11,199 | ||||||||||||||
| Total Operating Expense | 127,189 | 73,343 | 95,352 | — | 295,884 | ||||||||||||||
| Profit (Loss) from Operations | 32,609 | 23,608 | (1,931 | ) | (1,110 | ) | 53,176 | ||||||||||||
| Other Income (Expense): | |||||||||||||||||||
| Equity in Earnings of Affiliates | 14,766 | 2,122 | — | (16,888 | ) | — | |||||||||||||
| Interest (Expense) Income, Net | (1,221 | ) | — | 80 | — | (1,141 | ) | ||||||||||||
| Intercompany Interest Income (Expense) | 7,368 | (5,400 | ) | (1,968 | ) | — | — | ||||||||||||
| Net Foreign Currency Transaction Gains (Losses) | 535 | (777 | ) | (712 | ) | — | (954 | ) | |||||||||||
| Other (Expense) Income, Net | (3,633 | ) | (422 | ) | 3,398 | — | (657 | ) | |||||||||||
| Total Other Income (Expense), Net | 17,815 | (4,477 | ) | 798 | (16,888 | ) | (2,752 | ) | |||||||||||
| Profit (Loss) Before Income Taxes | 50,424 | 19,131 | (1,133 | ) | (17,998 | ) | 50,424 | ||||||||||||
| Income Tax Expense | 18,336 | 4,619 | 1,630 | (6,249 | ) | 18,336 | |||||||||||||
| Net Earnings (Loss) | $ | 32,088 | $ | 14,512 | $ | (2,763 | ) | $ | (11,749 | ) | $ | 32,088 | |||||||
| Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||||
| For the year ended December 31, 2017 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| Net Earnings | $ | (6,205 | ) | $ | 14,024 | $ | 19,977 | $ | (34,001 | ) | $ | (6,205 | ) | ||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||||
| Foreign currency translation adjustments | 28,356 | 1,215 | 2,960 | (4,175 | ) | 28,356 | |||||||||||||
| Pension and retiree medical benefits | 5,868 | — | 538 | (538 | ) | 5,868 | |||||||||||||
| Cash flow hedge | (7,731 | ) | — | — | — | (7,731 | ) | ||||||||||||
| Income Taxes: | |||||||||||||||||||
| Foreign currency translation adjustments | 310 | — | 310 | (310 | ) | 310 | |||||||||||||
| Pension and retiree medical benefits | (2,087 | ) | — | (99 | ) | 99 | (2,087 | ) | |||||||||||
| Cash flow hedge | 2,884 | — | — | — | 2,884 | ||||||||||||||
| Total Other Comprehensive (Loss) Income, net of tax | 27,600 | 1,215 | 3,709 | (4,924 | ) | 27,600 | |||||||||||||
| Total Comprehensive Income Including Noncontrolling Interest | 21,395 | 15,239 | 23,686 | (38,925 | ) | 21,395 | |||||||||||||
| Comprehensive Loss Attributable to Noncontrolling Interest | (10 | ) | — | (10 | ) | 10 | (10 | ) | |||||||||||
| Comprehensive Income Attributable to Tennant Company | $ | 21,405 | $ | 15,239 | $ | 23,696 | $ | (38,935 | ) | $ | 21,405 | ||||||||
| Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||||
| For the year ended December 31, 2016 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| Net Earnings | $ | 46,614 | $ | 15,622 | $ | 8,842 | $ | (24,464 | ) | $ | 46,614 | ||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||||
| Foreign currency translation adjustments | 109 | 270 | 3,534 | (3,804 | ) | 109 | |||||||||||||
| Pension and retiree medical benefits | (2,248 | ) | — | (1,691 | ) | 1,691 | (2,248 | ) | |||||||||||
| Cash flow hedge | (305 | ) | — | — | — | (305 | ) | ||||||||||||
| Income Taxes: | |||||||||||||||||||
| Foreign currency translation adjustments | 32 | — | 32 | (32 | ) | 32 | |||||||||||||
| Pension and retiree medical benefits | 504 | — | 296 | (296 | ) | 504 | |||||||||||||
| Cash flow hedge | 114 | — | — | — | 114 | ||||||||||||||
| Total Other Comprehensive (Loss) Income, net of tax | (1,794 | ) | 270 | 2,171 | (2,441 | ) | (1,794 | ) | |||||||||||
| Comprehensive Income | $ | 44,820 | $ | 15,892 | $ | 11,013 | $ | (26,905 | ) | $ | 44,820 | ||||||||
| Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||||
| For the year ended December 31, 2015 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| Net Earnings | $ | 32,088 | $ | 14,512 | $ | (2,763 | ) | $ | (11,749 | ) | $ | 32,088 | |||||||
| Other Comprehensive (Loss) Income: | |||||||||||||||||||
| Foreign currency translation adjustments | (12,520 | ) | (1,082 | ) | (12,903 | ) | 13,985 | (12,520 | ) | ||||||||||
| Pension and retiree medical benefits | 4,121 | — | 1,571 | (1,571 | ) | 4,121 | |||||||||||||
| Cash flow hedge | 164 | — | — | — | 164 | ||||||||||||||
| Income Taxes: | |||||||||||||||||||
| Foreign currency translation adjustments | 25 | — | 25 | (25 | ) | 25 | |||||||||||||
| Pension and retiree medical benefits | (1,265 | ) | — | (314 | ) | 314 | (1,265 | ) | |||||||||||
| Cash flow hedge | (61 | ) | — | — | — | (61 | ) | ||||||||||||
| Total Other Comprehensive Loss, net of tax | (9,536 | ) | (1,082 | ) | (11,621 | ) | 12,703 | (9,536 | ) | ||||||||||
| Comprehensive Income (Loss) | $ | 22,552 | $ | 13,430 | $ | (14,384 | ) | $ | 954 | $ | 22,552 | ||||||||
| Condensed Consolidated Balance Sheet | |||||||||||||||||||
| As of December 31, 2017 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| ASSETS | |||||||||||||||||||
| Current Assets: | |||||||||||||||||||
| Cash and Cash Equivalents | $ | 18,469 | $ | 507 | $ | 39,422 | $ | — | $ | 58,398 | |||||||||
| Restricted Cash | — | — | 653 | — | 653 | ||||||||||||||
| Net Receivables | 683 | 88,629 | 120,204 | — | 209,516 | ||||||||||||||
| Intercompany Receivables | 53,444 | 133,778 | — | (187,222 | ) | — | |||||||||||||
| Inventories | 29,450 | 12,695 | 94,542 | (8,993 | ) | 127,694 | |||||||||||||
| Prepaid Expenses | 8,774 | 1,172 | 9,405 | — | 19,351 | ||||||||||||||
| Other Current Assets | 4,030 | — | 3,473 | — | 7,503 | ||||||||||||||
| Total Current Assets | 114,850 | 236,781 | 267,699 | (196,215 | ) | 423,115 | |||||||||||||
| Property, Plant and Equipment | 225,064 | 12,155 | 145,549 | — | 382,768 | ||||||||||||||
| Accumulated Depreciation | (146,320 | ) | (6,333 | ) | (50,097 | ) | — | (202,750 | ) | ||||||||||
| Property, Plant and Equipment, Net | 78,744 | 5,822 | 95,452 | — | 180,018 | ||||||||||||||
| Deferred Income Taxes | 1,308 | 2,669 | 7,157 | — | 11,134 | ||||||||||||||
| Investment in Affiliates | 392,486 | 11,273 | 20,811 | (424,570 | ) | — | |||||||||||||
| Intercompany Loans | 304,822 | — | 4,983 | (309,805 | ) | — | |||||||||||||
| Goodwill | 12,869 | 1,739 | 171,436 | — | 186,044 | ||||||||||||||
| Intangible Assets, Net | 2,105 | 2,898 | 167,344 | — | 172,347 | ||||||||||||||
| Other Assets | 10,363 | — | 10,956 | — | 21,319 | ||||||||||||||
| Total Assets | $ | 917,547 | $ | 261,182 | $ | 745,838 | $ | (930,590 | ) | $ | 993,977 | ||||||||
| LIABILITIES AND TOTAL EQUITY | |||||||||||||||||||
| Current Liabilities: | |||||||||||||||||||
| Current Portion of Long-Term Debt | $ | 29,413 | $ | — | $ | 1,470 | $ | — | $ | 30,883 | |||||||||
| Accounts Payable | 39,927 | 3,018 | 53,137 | — | 96,082 | ||||||||||||||
| Intercompany Payables | 133,778 | 1,963 | 51,481 | (187,222 | ) | — | |||||||||||||
| Employee Compensation and Benefits | 8,311 | 10,355 | 18,591 | — | 37,257 | ||||||||||||||
| Income Taxes Payable | 366 | — | 2,472 | — | 2,838 | ||||||||||||||
| Other Current Liabilities | 20,183 | 15,760 | 33,504 | — | 69,447 | ||||||||||||||
| Total Current Liabilities | 231,978 | 31,096 | 160,655 | (187,222 | ) | 236,507 | |||||||||||||
| Long-Term Liabilities: | |||||||||||||||||||
| Long-Term Debt | 344,147 | — | 1,809 | — | 345,956 | ||||||||||||||
| Intercompany Loans | — | 128,000 | 181,805 | (309,805 | ) | — | |||||||||||||
| Employee-Related Benefits | 11,160 | 3,992 | 8,715 | — | 23,867 | ||||||||||||||
| Deferred Income Taxes | — | — | 53,225 | — | 53,225 | ||||||||||||||
| Other Liabilities | 31,788 | 2,483 | 1,677 | — | 35,948 | ||||||||||||||
| Total Long-Term Liabilities | 387,095 | 134,475 | 247,231 | (309,805 | ) | 458,996 | |||||||||||||
| Total Liabilities | 619,073 | 165,571 | 407,886 | (497,027 | ) | 695,503 | |||||||||||||
| Equity: | |||||||||||||||||||
| Common Stock | 6,705 | — | 11,131 | (11,131 | ) | 6,705 | |||||||||||||
| Additional Paid-In Capital | 15,089 | 72,483 | 384,460 | (456,943 | ) | 15,089 | |||||||||||||
| Retained Earnings | 297,032 | 23,797 | (21,219 | ) | �� | (2,578 | ) | 297,032 | |||||||||||
| Accumulated Other Comprehensive Loss | (22,323 | ) | (669 | ) | (38,391 | ) | 39,060 | (22,323 | ) | ||||||||||
| Total Tennant Company Shareholders’ Equity | 296,503 | 95,611 | 335,981 | (431,592 | ) | 296,503 | |||||||||||||
| Noncontrolling Interest | 1,971 | — | 1,971 | (1,971 | ) | 1,971 | |||||||||||||
| Total Equity | 298,474 | 95,611 | 337,952 | (433,563 | ) | 298,474 | |||||||||||||
| Total Liabilities and Total Equity | $ | 917,547 | $ | 261,182 | $ | 745,838 | $ | (930,590 | ) | $ | 993,977 | ||||||||
| Condensed Consolidated Balance Sheet | |||||||||||||||||||
| As of December 31, 2016 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| ASSETS | |||||||||||||||||||
| Current Assets: | |||||||||||||||||||
| Cash and Cash Equivalents | $ | 38,484 | $ | 226 | $ | 19,323 | $ | — | $ | 58,033 | |||||||||
| Restricted Cash | — | — | 517 | — | 517 | ||||||||||||||
| Net Receivables | 209 | 85,219 | 63,706 | — | 149,134 | ||||||||||||||
| Intercompany Receivables | 50,437 | 123,289 | 2,251 | (175,977 | ) | — | |||||||||||||
| Inventories | 26,422 | 12,821 | 49,829 | (10,450 | ) | 78,622 | |||||||||||||
| Prepaid Expenses | 4,120 | 1,151 | 3,933 | — | 9,204 | ||||||||||||||
| Other Current Assets | 2,402 | — | 10 | — | 2,412 | ||||||||||||||
| Total Current Assets | 122,074 | 222,706 | 139,569 | (186,427 | ) | 297,922 | |||||||||||||
| Property, Plant and Equipment | 225,651 | 12,996 | 59,853 | — | 298,500 | ||||||||||||||
| Accumulated Depreciation | (144,281 | ) | (6,175 | ) | (35,947 | ) | — | (186,403 | ) | ||||||||||
| Property, Plant and Equipment, Net | 81,370 | 6,821 | 23,906 | — | 112,097 | ||||||||||||||
| Deferred Income Taxes | 3,048 | 3,281 | 7,110 | — | 13,439 | ||||||||||||||
| Investment in Affiliates | 157,004 | 9,021 | — | (166,025 | ) | — | |||||||||||||
| Intercompany Loans | 130,000 | — | — | (130,000 | ) | — | |||||||||||||
| Goodwill | 12,869 | 1,439 | 6,757 | — | 21,065 | ||||||||||||||
| Intangible Assets, Net | — | 3,200 | 3,260 | — | 6,460 | ||||||||||||||
| Other Assets | 10,189 | 27 | 8,838 | — | 19,054 | ||||||||||||||
| Total Assets | $ | 516,554 | $ | 246,495 | $ | 189,440 | $ | (482,452 | ) | $ | 470,037 | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||||
| Current Liabilities: | |||||||||||||||||||
| Current Portion of Long-Term Debt | $ | 3,429 | $ | — | $ | 30 | $ | — | $ | 3,459 | |||||||||
| Accounts Payable | 30,867 | 2,599 | 13,942 | — | 47,408 | ||||||||||||||
| Intercompany Payables | 125,540 | 1,249 | 49,188 | (175,977 | ) | — | |||||||||||||
| Employee Compensation and Benefits | 12,025 | 15,261 | 8,711 | — | 35,997 | ||||||||||||||
| Income Taxes Payable | 1,410 | — | 938 | — | 2,348 | ||||||||||||||
| Other Current Liabilities | 15,329 | 13,348 | 14,940 | — | 43,617 | ||||||||||||||
| Total Current Liabilities | 188,600 | 32,457 | 87,749 | (175,977 | ) | 132,829 | |||||||||||||
| Long-Term Liabilities: | |||||||||||||||||||
| Long-Term Debt | 32,714 | — | 21 | — | 32,735 | ||||||||||||||
| Intercompany Loans | — | 128,000 | 2,000 | (130,000 | ) | — | |||||||||||||
| Employee-Related Benefits | 14,291 | 3,704 | 3,139 | — | 21,134 | ||||||||||||||
| Deferred Income Taxes | — | — | 171 | — | 171 | ||||||||||||||
| Other Liabilities | 2,406 | 1,295 | 924 | — | 4,625 | ||||||||||||||
| Total Long-Term Liabilities | 49,411 | 132,999 | 6,255 | (130,000 | ) | 58,665 | |||||||||||||
| Total Liabilities | 238,011 | 165,456 | 94,004 | (305,977 | ) | 191,494 | |||||||||||||
| Shareholders' Equity: | |||||||||||||||||||
| Common Stock | 6,633 | — | 11,131 | (11,131 | ) | 6,633 | |||||||||||||
| Additional Paid-In Capital | 3,653 | 72,483 | 158,592 | (231,075 | ) | 3,653 | |||||||||||||
| Retained Earnings | 318,180 | 9,771 | (32,187 | ) | 22,416 | 318,180 | |||||||||||||
| Accumulated Other Comprehensive Loss | (49,923 | ) | (1,215 | ) | (42,100 | ) | 43,315 | (49,923 | ) | ||||||||||
| Total Shareholders’ Equity | 278,543 | 81,039 | 95,436 | (176,475 | ) | 278,543 | |||||||||||||
| Total Liabilities and Shareholders’ Equity | $ | 516,554 | $ | 246,495 | $ | 189,440 | $ | (482,452 | ) | $ | 470,037 | ||||||||
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||||
| For the year ended December 31, 2017 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| OPERATING ACTIVITIES | |||||||||||||||||||
| Net Cash Provided by Operating Activities | $ | 26,992 | $ | 280 | $ | 27,711 | $ | (809 | ) | $ | 54,174 | ||||||||
| INVESTING ACTIVITIES | |||||||||||||||||||
| Purchases of Property, Plant and Equipment | (9,558 | ) | — | (10,879 | ) | — | (20,437 | ) | |||||||||||
| Proceeds from Disposals of Property, Plant and Equipment | 23 | 1 | 2,487 | — | 2,511 | ||||||||||||||
| Proceeds from Principal Payments Received on Long-Term Note Receivable | — | — | 667 | — | 667 | ||||||||||||||
| Issuance of Long-Term Note Receivable | — | — | (1,500 | ) | — | (1,500 | ) | ||||||||||||
| Acquisition of Businesses, Net of Cash Acquired | (304 | ) | — | (353,769 | ) | — | (354,073 | ) | |||||||||||
| Purchase of Intangible Asset | (2,500 | ) | — | — | — | (2,500 | ) | ||||||||||||
| Change in Investments in Subsidiaries | (199,028 | ) | — | — | 199,028 | — | |||||||||||||
| Loan (Payments) Borrowings from Subsidiaries | (159,780 | ) | — | (4,983 | ) | 164,763 | — | ||||||||||||
| Increase in Restricted Cash | — | — | (92 | ) | — | (92 | ) | ||||||||||||
| Net Cash (Used in) Provided by Investing Activities | (371,147 | ) | 1 | (368,069 | ) | 363,791 | (375,424 | ) | |||||||||||
| FINANCING ACTIVITIES | |||||||||||||||||||
| Proceeds from Short-Term Debt | 303,000 | — | — | — | 303,000 | ||||||||||||||
| Repayments of Short-Term Debt | (303,000 | ) | — | — | — | (303,000 | ) | ||||||||||||
| Loan Borrowings (Payments) from Parent | 4,983 | — | 159,780 | (164,763 | ) | — | |||||||||||||
| Change in Subsidiary Equity | — | — | 199,028 | (199,028 | ) | — | |||||||||||||
| Proceeds from Issuance of Long-Term Debt | 440,000 | — | — | — | 440,000 | ||||||||||||||
| Payments of Long-Term Debt | (96,142 | ) | — | (106 | ) | — | (96,248 | ) | |||||||||||
| Payments of Debt Issuance Costs | (16,482 | ) | — | — | — | (16,482 | ) | ||||||||||||
| Change in Capital Lease Obligations | — | — | 311 | — | 311 | ||||||||||||||
| Proceeds from Issuances of Common Stock | 6,875 | — | — | — | 6,875 | ||||||||||||||
| Purchase of Noncontrolling Owner Interest | — | — | (30 | ) | — | (30 | ) | ||||||||||||
| Dividends Paid | (14,953 | ) | — | (809 | ) | 809 | (14,953 | ) | |||||||||||
| Net Cash Provided by Financing Activities | 324,281 | — | 358,174 | (362,982 | ) | 319,473 | |||||||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | (141 | ) | — | 2,283 | — | 2,142 | |||||||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (20,015 | ) | 281 | 20,099 | — | 365 | |||||||||||||
| Cash and Cash Equivalents at Beginning of Year | 38,484 | 226 | 19,323 | — | 58,033 | ||||||||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 18,469 | $ | 507 | $ | 39,422 | $ | — | $ | 58,398 | |||||||||
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||||
| For the year ended December 31, 2016 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| OPERATING ACTIVITIES | |||||||||||||||||||
| Net Cash Provided by Operating Activities | $ | 44,147 | $ | 239 | $ | 14,090 | $ | (598 | ) | $ | 57,878 | ||||||||
| INVESTING ACTIVITIES | |||||||||||||||||||
| Purchases of Property, Plant and Equipment | (21,507 | ) | (13 | ) | (5,006 | ) | — | (26,526 | ) | ||||||||||
| Proceeds from Disposals of Property, Plant and Equipment | 377 | — | 238 | — | 615 | ||||||||||||||
| Acquisition of Businesses, Net of Cash Acquired | — | (11,539 | ) | (1,394 | ) | — | (12,933 | ) | |||||||||||
| Issuance of Long-Term Note Receivable | — | — | (2,000 | ) | — | (2,000 | ) | ||||||||||||
| Proceeds from Sale of Business | — | — | 285 | — | 285 | ||||||||||||||
| Change in Investments in Subsidiaries | (19,594 | ) | — | — | 19,594 | — | |||||||||||||
| Loan Borrowings (Payments) from Subsidiaries | 8,690 | — | — | (8,690 | ) | — | |||||||||||||
| Decrease in Restricted Cash | — | — | 116 | — | 116 | ||||||||||||||
| Net Cash Used in Investing Activities | (32,034 | ) | (11,552 | ) | (7,761 | ) | 10,904 | (40,443 | ) | ||||||||||
| FINANCING ACTIVITIES | |||||||||||||||||||
| Loan Borrowings (Payments) from Parent | — | 7,969 | (16,659 | ) | 8,690 | — | |||||||||||||
| Change in Subsidiary Equity | — | 3,570 | 16,024 | (19,594 | ) | — | |||||||||||||
| Payments of Long-Term Debt | (3,429 | ) | — | (31 | ) | — | (3,460 | ) | |||||||||||
| Proceeds from Issuance of Long-Term Debt | 15,000 | — | — | — | 15,000 | ||||||||||||||
| Purchases of Common Stock | (12,762 | ) | — | — | — | (12,762 | ) | ||||||||||||
| Proceeds from Issuances of Common Stock | 5,271 | — | — | — | 5,271 | ||||||||||||||
| Excess Tax Benefit on Stock Plans | 686 | — | — | — | 686 | ||||||||||||||
| Dividends Paid | (14,293 | ) | — | (598 | ) | 598 | (14,293 | ) | |||||||||||
| Net Cash (Used in) Provided by Financing Activities | (9,527 | ) | 11,539 | (1,264 | ) | (10,306 | ) | (9,558 | ) | ||||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 64 | — | (1,208 | ) | — | (1,144 | ) | ||||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 2,650 | 226 | 3,857 | — | 6,733 | ||||||||||||||
| Cash and Cash Equivalents at Beginning of Year | 35,834 | — | 15,466 | — | 51,300 | ||||||||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 38,484 | $ | 226 | $ | 19,323 | $ | — | $ | 58,033 | |||||||||
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||||
| For the year ended December 31, 2015 | |||||||||||||||||||
| (in thousands) | Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total Tennant Company | ||||||||||||||
| OPERATING ACTIVITIES | |||||||||||||||||||
| Net Cash Provided by Operating Activities | $ | 40,764 | $ | — | $ | 4,928 | $ | (460 | ) | $ | 45,232 | ||||||||
| INVESTING ACTIVITIES | |||||||||||||||||||
| Purchases of Property, Plant and Equipment | (19,149 | ) | — | (5,631 | ) | — | (24,780 | ) | |||||||||||
| Proceeds from Disposals of Property, Plant and Equipment | 32 | — | 304 | — | 336 | ||||||||||||||
| Loan Borrowings (Payments) from Subsidiaries | 268 | — | — | (268 | ) | — | |||||||||||||
| Proceeds from Sale of Business | — | — | 1,185 | — | 1,185 | ||||||||||||||
| Increase in Restricted Cash | — | — | (322 | ) | — | (322 | ) | ||||||||||||
| Net Cash Used in Investing Activities | (18,849 | ) | — | (4,464 | ) | (268 | ) | (23,581 | ) | ||||||||||
| FINANCING ACTIVITIES | |||||||||||||||||||
| Loan (Payments) Borrowings from Parent | — | — | (268 | ) | 268 | — | |||||||||||||
| Payments of Long-Term Debt | (3,435 | ) | — | (10 | ) | — | (3,445 | ) | |||||||||||
| Purchases of Common Stock | (45,998 | ) | — | — | — | (45,998 | ) | ||||||||||||
| Proceeds from Issuances of Common Stock | 1,677 | — | — | — | 1,677 | ||||||||||||||
| Excess Tax Benefit on Stock Plans | 859 | — | — | — | 859 | ||||||||||||||
| Dividends Paid | (14,498 | ) | — | (460 | ) | 460 | (14,498 | ) | |||||||||||
| Net Cash Used in Financing Activities | (61,395 | ) | — | (738 | ) | 728 | (61,405 | ) | |||||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 79 | — | (1,987 | ) | — | (1,908 | ) | ||||||||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (39,401 | ) | — | (2,261 | ) | — | (41,662 | ) | |||||||||||
| Cash and Cash Equivalents at Beginning of Year | 75,235 | — | 17,727 | — | 92,962 | ||||||||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 35,834 | $ | — | $ | 15,466 | $ | — | $ | 51,300 | |||||||||
None.
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and PrincipalInterim Chief Financial Officer and Interim Principal Accounting Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of December 31, 2017.2020. Based on that evaluation, our Chief Executive Officer and PrincipalInterim Chief Financial Officer and Interim Principal Accounting Officer concluded that, as of December 31, 2017,2020, our disclosure controls and procedures were effective.
For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its Chief Executive Officer and PrincipalInterim Chief Financial Officer and Interim Principal Accounting Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that:
(i) | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; |
(ii) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
(iii) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Under the supervision of the Audit Committee of the Board of Directors and with the participation of our management, including our Chief Executive Officer and PrincipalInterim Chief Financial Officer and Interim Principal Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria established in
Deloitte & Touche LLP, anour independent registered public accounting firm, has audited the effectiveness of the Company's internal control over financial reporting as of December 31, 20172020 and has issued a report which is included in Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no othersignificant changes in the Company's internal control over financial reporting during the quarter ended December 31, 20172020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Information required under this item with respect to directors is contained in the sections entitled “Board of Directors Information” and “Section 16(a) Beneficial Ownership Reporting Compliance”Directors” as part of our 20182021 Proxy Statement and is incorporated herein by reference. See also
Business Ethics Guide
We have adopted the Tennant Company Business Ethics Guide, as amended by the Board of Directors in December 2011, which applies to all of our employees, directors, consultants, agents and anyone else acting on our behalf. The Business Ethics Guide includes particular provisions applicable to our senior financial management, which includes our Chief Executive Officer, Chief Financial Officer, Controller and other employees performing similar functions. A copy of our Business Ethics Guide is available on the Investor Relations website at investors.tennantco.com. We intend to post on our website any amendment to, or waiver from, a provision of our Business Ethics Guide that applies to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Controller and other persons performing similar functions promptly following the date of such amendment or waiver. In addition, we have also posted copies of our Corporate Governance Principles and the Charters for our Audit, Compensation, Governance and Executive Committees on our website.
Information required under this item is contained in the sections entitled “Director Compensation” andCompensation," “Executive Compensation Information”Information,” and "Pay Ratio" as part of our 20182021 Proxy Statement and is incorporated herein by reference.
Information required under this item is contained in the sectionsections entitled “Security Ownership of Certain Beneficial Owners and Management” and "Equity Compensation Plan Information" as part of our 20182021 Proxy Statement and isare incorporated herein by reference. The section entitled "Equity Compensation Plan Information" can be found within Item 5 of this form 10-K.
Information required under this item is contained in the sections entitled “Director Independence” and “Related Person“Related-Person Transaction Approval Policy” as part of our 20182021 Proxy Statement and is incorporated herein by reference.
Information required under this item is contained in the section entitled “Fees Paid to Independent Registered Public Accounting Firm” as part of our 20182021 Proxy Statement and is incorporated herein by reference.
A. | The following documents are filed as a part of this report: |
1. | Financial Statements |
Consolidated Financial Statements filed as part of this report are contained in Item 8 of this annual reportAnnual Report on Form 10-K.
2. | Financial Statement Schedule |
Schedule II - Valuation and Qualifying Accounts
| (In thousands) | 2017 | 2016 | 2015 | ||||||||
| Allowance for Doubtful Accounts and Returns: | |||||||||||
| Balance at beginning of year | $ | 3,108 | $ | 3,615 | $ | 3,936 | |||||
| Charged to costs and expenses | 1,602 | 561 | 1,087 | ||||||||
Reclassification(1) | (526 | ) | — | 172 | |||||||
Charged to other accounts(2) | 111 | (19 | ) | (159 | ) | ||||||
Deductions(3) | (1,054 | ) | (1,049 | ) | (1,421 | ) | |||||
| Balance at end of year | $ | 3,241 | $ | 3,108 | $ | 3,615 | |||||
| Inventory Reserves: | |||||||||||
| Balance at beginning of year | $ | 3,644 | $ | 3,540 | $ | 3,272 | |||||
| Charged to costs and expenses | 1,698 | 1,455 | 1,728 | ||||||||
Charged to other accounts(2) | 183 | (50 | ) | (160 | ) | ||||||
Deductions(4) | (1,418 | ) | (1,301 | ) | (1,300 | ) | |||||
| Balance at end of year | $ | 4,107 | $ | 3,644 | $ | 3,540 | |||||
| Valuation Allowance for Deferred Tax Assets: | |||||||||||
| Balance at beginning of year | $ | 6,865 | $ | 5,884 | $ | 5,699 | |||||
| Charged to costs and expenses | 1,634 | 1,295 | 734 | ||||||||
Charged to other accounts(2) | 1,192 | (314 | ) | (549 | ) | ||||||
| Balance at end of year | $ | 9,691 | $ | 6,865 | $ | 5,884 | |||||
(In millions) | 2020 | 2019 | 2018 | |||||||||
Allowance for doubtful accounts: | ||||||||||||
Balance at beginning of year | $ | 3.6 | $ | 2.5 | $ | 2.4 | ||||||
Charged to costs and expenses | 2.2 | 2.5 | 0.4 | |||||||||
Reclassification(1) | 0 | 0.5 | 0.8 | |||||||||
Charged to other accounts(2) | 0 | 0 | (0.2 | ) | ||||||||
Deductions(3) | (1.2 | ) | (1.9 | ) | (0.9 | ) | ||||||
Balance at end of year | $ | 4.6 | $ | 3.6 | $ | 2.5 | ||||||
Sales returns reserve: | ||||||||||||
Balance at beginning of year | $ | 1.2 | $ | 1.3 | $ | 0.8 | ||||||
Charged to costs and expenses | 0.2 | 0.1 | 0.7 | |||||||||
Deductions(3) | (0.4 | ) | (0.2 | ) | (0.2 | ) | ||||||
Balance at end of year | $ | 1.0 | $ | 1.2 | $ | 1.3 | ||||||
Allowance for excess and obsolete inventories: | ||||||||||||
Balance at beginning of year | $ | 9.8 | $ | 5.6 | $ | 4.1 | ||||||
Charged to costs and expenses | 4.4 | 4.6 | 1.9 | |||||||||
Charged to other accounts(2) | 0.2 | 0 | (0.1 | ) | ||||||||
Deductions(4) | (0.8 | ) | (0.4 | ) | (0.3 | ) | ||||||
Balance at end of year | $ | 13.6 | $ | 9.8 | $ | 5.6 | ||||||
Valuation allowance for deferred tax assets: | ||||||||||||
Balance at beginning of year | $ | 6.2 | $ | 11.5 | $ | 9.7 | ||||||
Charged to costs and expenses | 0.9 | (5.2 | ) | 2.4 | ||||||||
Charged to other accounts(2) | 0.4 | (0.1 | ) | (0.6 | ) | |||||||
Balance at end of year | $ | 7.5 | $ | 6.2 | $ | 11.5 | ||||||
| Includes amount reclassified |
| Primarily includes impact from foreign currency fluctuations. |
| Includes accounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves. |
| Includes inventory identified as excess, slow moving or obsolete and charged against reserves. |
All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.
3. | Exhibits |
Item # | Description | Method of Filing | ||
2.1 | Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed February 28, 2017. | |||
3.1 | Incorporated by reference to Exhibit 3i to the Company’s Form 10-Q for the quarter ended June 30, 2006. | |||
3.2 | Incorporated by reference to Exhibit 3iii to the Company’s Current Report on Form 8-K dated December 14, 2010. | |||
3.3 | Incorporated by reference to Exhibit 3iii to the Company's Form 10-Q for the quarter ended March 31, 2018. | |||
4.1 | Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019. | |||
4.2 | Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 24, 2017. | |||
4.3 | Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed April 24, 2017. | |||
4.4 | Incorporated by reference to Exhibit 4(b)(1) to the Company's Registration Statement on Form S-4 filed January 8, 2018. | |||
10.1 | Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2012. | |||
10.2 | Incorporated by reference to Exhibit 10.3 to the Company's Form 10-K for the year ended December 31, 2011. | |||
10.3 | Incorporated by reference to Exhibit 10.3 to the Company's Form 10-K for the year ended December 31, 2019. | |||
10.4 | Incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended June 30, 2004. | |||
10.5 | Incorporated by reference to Appendix A to the Company’s Proxy Statement for the 2006 Annual Meeting of Shareholders filed on March 15, 2006. | |||
10.6 | Incorporated by reference to Appendix A to the Company’s Proxy Statement for the 2007 Annual Meeting of Shareholders filed on March 15, 2007. | |||
10.7 | Incorporated by reference to Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 2007. | |||
10.8 | Incorporated by reference to Appendix B to the Company's Proxy Statement for the 2013 Annual Meeting of Shareholders filed on March 11, 2013. | |||
10.9 | Incorporated by reference to Appendix A to the Company's Proxy Statement for the 2013 Annual Meeting of Shareholders filed on March 11, 2013. | |||
10.10 | Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 5, 2017. | |||
10.11 | Incorporated by reference to Appendix A on the Company's Proxy Statement for the 2017 Annual Meeting of Shareholders filed March 15, 2017. | |||
10.12 | Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended June 30, 2017. | |||
10.13 | Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q for the quarter ended June 30, 2017. | |||
10.14 | Incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter ended June 30, 2017. | |||
10.15 | Incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q for the quarter ended June 30, 2017. | |||
10.16 | Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 2018. | |||
10.17 | Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 20, 2018. | |||
10.18 | Tennant Company Executive Officer Severance Plan and Summary Plan Description* | Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 10, 2018. | ||
| 10.19 | Separation Agreement by and between Tennant Company and Mary E. Talbott, dated July 8, 2020* | Incorporated by reference to Exhibit 10 to the Company's Current Report on Form 8-K filed July 10, 2020. | ||
| 10.20 | Separation Letter with Keith Woodward dated May 4, 2020* | Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
| 10.21 | Cash Retention Award for Richard Zay dated May 1, 2020* | Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
| 10.22 | Tennant Company 2020 Stock Incentive Plan* | Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
| 10.23 | Form of Tennant Company 2020 Stock Incentive Plan Non-Statutory Stock Option Agreement* | Incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
| 10.24 | Form of Tennant Company 2020 Stock Incentive Plan Restricted Stock Agreement* | Incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
| 10.25 | Form of Tennant Company 2020 Stock Incentive Plan Restricted Stock Unit Agreement* | Incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
| 10.26 | Form of Tennant Company 2020 Stock Incentive Plan Non-Employee Director Restricted Stock Unit Agreement* | Incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
| 10.27 | Form of Tennant Company 2020 Stock Incentive Plan Performance Restricted Stock Unit Agreement* | Incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
| 10.28 | Form of Tennant Company 2020 Stock Incentive Plan Special Performance Restricted Stock Unit Agreement* | Incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q for the quarter ended June 30, 2020. | ||
21 | Filed herewith electronically. | |||
| 22 | Subsidiary Guarantors | Filed herewith electronically. | ||
| 23.1 | Filed herewith electronically. | |||
23.2 | Consent of KPMG LLP Independent Registered Public Accounting Firm | Filed herewith electronically. | ||
24.1 | Included on signature page. | |||
31.1 | Filed herewith electronically. | |||
31.2 | Filed herewith electronically. |
32.1 | Filed herewith electronically. | |||
32.2 | Filed herewith electronically. | |||
101 | The following financial information from Tennant Company’s annual report on Form 10-K for the period ended December 31, | Filed herewith electronically. | ||
104 | Inline Extensible Business Reporting language (iXBRL) for the cover page of this Annual Report on Form 10-K, included in Exhibit 101 | Filed herewith electronically. | ||
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-K.
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TENNANT COMPANY | ||||||||
By | /s/ H. Chris Killingstad | |||||||
H. Chris Killingstad | ||||||||
President, CEO and | ||||||||
Board of Directors | ||||||||
Date | February | |||||||
Each of the undersigned hereby appoints H. Chris Killingstad and Jeffrey L. Cotter,Kristin A. Stokes, and each of them (with full power to act alone), as attorneys and agents for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, any and all amendments and exhibits to this annual report on Form 10-K and any and all applications, instruments, and other documents to be filed with the Securities and Exchange Commission pertaining to this annual report on Form 10-K or any amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary or desirable.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By | /s/ H. Chris Killingstad | By | /s/ | ||||
H. Chris Killingstad | Timothy R. Morse | ||||||
President, CEO and Board of Directors | Board of Directors | ||||||
| Date | February | Date | February 25, 2021 | ||||
By | /s/ Thomas Paulson | By | /s/ | ||||
Thomas Paulson | Donal L. Mulligan | ||||||
Interim Chief Financial Officer and Interim Principal Accounting Officer | Board of Directors | ||||||
Date | February 25, 2021 | Date | February | ||||
| 25, 2021 | |||||||
By | /s/ Azita Arvani | By | /s/ | ||||
Azita Arvani | Steven A. Sonnenberg | ||||||
Board of Directors | Board of Directors | ||||||
Date | February | Date | February | ||||
By | /s/ William F. Austen | By | /s/ David | ||||
William F. Austen | David | ||||||
Board of Directors | Board of Directors | ||||||
Date | February | Date | February | ||||
By | /s/ Carol S. Eicher | By | /s/ David Windley | ||||
Carol S. Eicher | David Windley | ||||||
Board of Directors | Board of Directors | ||||||
Date | February 25, 2021 | Date | February 25, 2021 | ||||
By | /s/ Maria C. Green | ||||||
| Board of Directors | |||||||
Date | February |